Gold Sinks as Stronger Payrolls Data Sparks Rate Hike Fears

Gold prices plummeted on Thursday after stronger-than-expected US payrolls data suggested that the labor market is healthier than thought. The spot price of gold tumbled as much as 2.4% to settle near $4,400 per ounce.

The US Bureau of Labor Statistics reported a significant increase in nonfarm payrolls for August, with a surge of 162,000 jobs, tripling the consensus forecast of 53,000 to 65,000. The unemployment rate held steady at 4.1%, and prior months' job numbers were revised upward.

Wage growth was also measured but persistent, with average hourly earnings climbing 0.3% month-over-month and 3.1% year-over-year. This data sparked a rise in Treasury yields and a strengthening of the US dollar, making gold less attractive to investors.

The Federal Reserve's rate hike prospects have increased significantly, with markets now pricing in roughly a 60% probability that interest rates will be raised at its September meeting, up from about 50% before the report. Gold's relationship with interest rates is straightforward: when rates rise, holding an asset with zero income becomes less attractive relative to bonds and other yield-bearing instruments.