Gold prices fell on Friday, extending losses into what is shaping up to be a weekly decline, as stronger-than-expected U.S. employment data reignited expectations that the Federal Reserve may resume interest rate hikes later this year.
The selloff in bullion was driven by a repricing across global financial markets following the release of the May U.S. nonfarm payrolls report, which showed the addition of 172,000 jobs, nearly double economists’ expectations of 85,000. The surprise upside reinforced confidence in the resilience of the U.S. labour market and shifted investor attention back toward inflation risks, tightening monetary conditions, and a potentially more hawkish Federal Reserve stance.
In response, the U.S. dollar strengthened while Treasury yields surged as investors dumped government bonds in anticipation of higher interest rates. The shift in yield expectations placed immediate pressure on non-yielding assets such as gold, accelerating outflows from the precious metals market.
Spot gold fell 3.3 percent to $4,325.96 per ounce, while gold futures declined 3.4 percent to $4,352.57 per ounce.
The catalyst for Friday’s market moves was the May nonfarm payrolls report from the U.S. Bureau of Labor Statistics, which not only beat expectations but also included upward revisions to prior months’ data. Employment gains for March and April were revised higher by a combined 93,000 jobs, reinforcing the view that the U.S. economy remains resilient despite earlier concerns about slowdown risks.
The unemployment rate held steady at 4.3 percent, further supporting the narrative that the labour market remains tight enough to sustain inflationary pressures.
Market pricing reflected this shift, with traders increasing the probability of at least one rate hike before year-end. According to the CME FedWatch tool, a quarter-point hike is now fully priced in by the end of 2026, marking a notable shift in sentiment from earlier expectations of policy easing.
The decline in gold underscores its sensitivity to real interest rates and dollar strength. As a non-yielding asset, gold tends to lose attractiveness in environments where government bonds and cash instruments offer higher returns.
Friday’s bond market selloff intensified this dynamic. Investors dumped U.S. Treasuries in large volumes, driving yields higher across the curve and making fixed-income instruments more competitive relative to bullion.
The stronger dollar compounded the pressure, increasing the cost of gold for non-U.S. buyers and adding further downward momentum to prices.
“Friday’s jobs report was much stronger than expected and shows that the labour market is turning a corner. The revival of the labour market makes the Federal Reserve’s job easier and allows it to keep rates steady in the meantime as it assesses the volatile inflation situation,” said Glen Smith, chief investment officer at GDS Wealth Management.
Smith added that persistent inflation pressures, partly driven by elevated energy prices, could keep policymakers cautious and limit any near-term easing cycle.
However, market economists are increasingly aligning around a more hawkish outlook. Analysts at Macquarie noted that the next policy move is now more likely to be a hike rather than a cut, albeit with timing still uncertain.
“Our baseline FOMC view is unchanged. We see the next move as a hike, with our baseline timing in 1Q27. Risks have shifted toward earlier tightening, with markets now discounting a hike by 4Q26,” said David Doyle, head of economics at Macquarie.
Doyle added that Federal Reserve communication is likely to shift further away from a cutting bias in the coming weeks, reinforcing the repricing already underway in global bond markets.
