Gold Prices Tumble as Strong U.S. Jobs Report Fuels Fed Rate Hike Expectations

Gold prices recorded a sharp decline on Friday and were set for a weekly loss after stronger-than-expected U.S. employment data increased expectations that the Federal Reserve may raise interest rates later in 2026. The robust labor market report strengthened the U.S. dollar and pushed Treasury yields higher, creating significant pressure on the precious metal market.

Spot gold fell 3.3% to $4,325.96 per ounce, while gold futures dropped 3.4% to $4,352.57 per ounce. The decline came as investors reacted to the latest U.S. nonfarm payrolls report, which showed the economy added 172,000 jobs in May, far exceeding forecasts of 85,000. The unemployment rate remained steady at 4.3%, while payroll figures for March and April were revised upward by a combined 93,000 jobs.

The stronger labor market data reinforced expectations that the Federal Reserve will keep interest rates elevated for longer. Rising oil prices and persistent inflation concerns have also reduced the likelihood of rate cuts in the near term. Market participants now increasingly expect at least one quarter-point rate hike before the end of the year, according to market pricing.

Higher interest rates typically weigh on gold because the metal does not generate yield, making interest-bearing assets more attractive to investors. The jump in rate hike expectations also triggered a sell-off in government bonds, pushing Treasury yields sharply higher and further supporting the U.S. dollar.

Market analysts noted that the improving employment picture gives the Federal Reserve greater flexibility to focus on inflation risks. Recent comments from policymakers and economists suggest the central bank's stance may continue shifting toward a more hawkish outlook in the coming months.

Meanwhile, geopolitical tensions in the Middle East remain elevated. Hopes for broader regional peace negotiations weakened after Hezbollah rejected a recently proposed Israel-Lebanon ceasefire agreement. Ongoing disruptions around the Strait of Hormuz continue to impact global energy markets, keeping oil prices elevated and adding to worldwide inflationary pressures.

Despite geopolitical uncertainty typically supporting safe-haven assets such as gold, the market's focus remained firmly on rising U.S. interest rate expectations, stronger economic data, and a surging dollar, all of which contributed to gold's steep weekly decline.