Gold erases all 2026 gains as strong U.S. jobs data boosts rate hike expectations

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Gold plunged sharply on Friday, completely erasing all gains since the beginning of the year. Strong U.S. employment data reignited market bets on Fed rate hikes, coupled with a strengthening dollar and rising U.S. Treasury yields, putting significant pressure on precious metals.

U.S. May employment growth exceeded all expectations, and spot gold once fell 3.6% to $4,315.35 per ounce, losing all gains year-to-date.

After the employment data was released, Beth Hammack, the Fed’s most hawkish voting member and president of the Cleveland Fed, said if recent trends persist, "it may soon be appropriate to take action" and raise interest rates, further reinforcing market expectations for tightening policies. Traders have now fully priced in a 25 basis point rate hike by the Fed before December and estimate about a 60% probability of a rate hike before October.

Meanwhile, the Middle East situation remains stalemated, with unresolved differences between Iran and the U.S. on the cease-fire issue. The blockage of energy flows in the Strait of Hormuz has driven up oil prices, further intensifying global inflation concerns, increasing the likelihood that central banks will maintain high interest rates or even hike further, thereby adding extra pressure on non-yielding assets like gold.

Phil Streible, chief market strategist at Blue Line Futures, said some investors are reducing their gold holdings to make up for losses in other assets, exacerbating the sell-off pressure on precious metals. Silver plunged 7.8% to $68.16 per ounce on Friday, and platinum and palladium also dropped. The Bloomberg Dollar Spot Index rose 0.6%.

Double Headwinds Hit, Gold Technicals in Crisis

This decline in gold is facing dual pressure from rising real interest rates and a strengthening dollar. Elias Haddad, Global Market Strategist at Brown Brothers Harriman & Co., said:

"Gold is facing the double headwind of rising real yields and a strengthening dollar. Once gold falls below the 200-day moving average—a widely tracked long-term momentum indicator—it will signal risk for a deep correction."

As of publication, spot gold fell 3.5% to $4,319.68 per ounce. Gold is now down about 18% from pre-war levels, just one step away from erasing all year-to-date gains. Since the outbreak of the Middle East conflict in late February, gold has been dropping sharply, and has been consolidating within a narrow range in the past few weeks.

Clear Hawkish Signals, Rate Hike Timeline Moved Forward

After the employment data was released, the most representative hawkish voices within the Fed immediately spoke out.

Beth Hammack stated in a LinkedIn post that the labor market seems to be stabilizing, "For now, given the uncertainties in economic outlook, keeping rates steady is appropriate. But if recent trends continue, it may soon be appropriate to take action." These remarks are essentially consistent with her statements on June 2.

Before the employment data release, traders had expected the Fed's next move to be a rate hike in March.

Now, market expectations have moved significantly forward—rate hikes by December have been fully priced in, and the probability of a rate hike in October has risen to about 60%. The Fed will hold its policy meeting on June 16–17, to be chaired by new Chairman Kevin Warsh.

Stock Market Weakens in Sync, Metal Sector Under Pressure

Gold's decline is also dragged down by a pullback in the tech-led stock market.

Industrial metals also came under broad pressure. Copper on the London Metal Exchange posted its largest single-day decline in over two months, down 3% to $13,519.50 per ton; aluminum fell 2%, zinc closed down 1.6%, and other base metals also declined across the board.

Investors are concerned that tightening financial conditions may eventually drag on economic activity, further curbing demand for industrial raw materials like copper and aluminum.

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