Gold slides over 2% as robust jobs report stokes hawkish Fed fears

(Reuters) - Gold prices dropped over 2% on Friday to a more than three-week low after stronger-than-expected U.S. jobs data raised fears that the Federal Reserve could keep hiking interest rates.

Granules of gold and silver are seen in glass jars at the Krastsvetmet non-ferrous metals plant in the Siberian city of Krasnoyarsk, Russia March 10, 2022. REUTERS/Alexander Manzyuk/Files

Spot gold dipped 2.6% to $1,863.66 per ounce by 1:40 p.m. ET (1840 GMT). U.S. gold futures settled down 2.8% to $1,876.6.

Bullion is down 2.5% so far this week, marking its biggest weekly fall since early October, with prices having fallen nearly $100 in two sessions.

U.S. employment growth accelerated sharply in January, with 517,000 positions added, almost double the gain in December. The unemployment rate hit more than a 53-1/2-year low of 3.4%, pointing to a persistently tight labour market.

“This (data) is going to add support to the argument that the Fed might have to remain a little bit more aggressive going forward,” said Edward Moya, senior market analyst at OANDA.

The dollar jumped 1.1%, reaching a three-week high and making gold a less attractive bet. The yield on 10-year Treasury notes also climbed. [USD/] [US/]

GRAPHIC: Gold vs. dollar -

Earlier this week, the U.S. central bank delivered a quarter-percentage-point rate increase after a year of larger hikes and Fed Chair Jerome Powell warned of further monetary policy tightening.

Gold is highly sensitive to rising U.S. interest rates, as they increase the opportunity cost of holding non-yielding bullion.

“As long as employment and other data in the U.S. continues to be firm, I think we have to start expecting the U.S. central bank to err on the side of caution,” said Bart Melek, head of commodity markets strategy at TD Securities.

Traders’ bets for a 25-basis-point rate hike at the Fed’s March meeting ticked up after Friday’s data, while the U.S. central bank’s benchmark overnight interest rate was seen peaking at 4.95% by June compared to 4.91% earlier.

Elsewhere, spot silver dropped 4.9% to $22.33 per ounce, platinum was down 4.7% to $973.17, while palladium fell 1.6% to $1,628.43. All three of those precious metals were down for the week.

Reporting by Seher Dareen in Bengaluru, additional reporting Harshit Verma; Editing by Emelia Sithole-Matarise and Paul Simao