(Bloomberg) -- Gold declined, reversing earlier advances, as weakness in equity markets weighed on the metal amid mounting concerns that the Federal Reserve has been too slow to cut interest rates.
While gold is viewed as a traditional haven asset, it often comes under pressure during sharp global corrections as traders liquidate holdings to cover losses elsewhere. The selloff in stocks intensified after a weak US jobs report fueled worries that the Fed’s hold stance on rates is now risking a more pronounced economic slowdown.
“Gold’s move lower is mainly because of the general risk asset sell off,” said Matthew Schwab, head of investor solutions at Quantix Commodities. “It gets sold to offest other losses. This is generic position liquidation.”
Gold has struggled to find the momentum to breach last month’s record. Prices briefly rose earlier Friday as the weak US jobs data signaled looser interest policy was likely coming from the Fed. That enthusiasm was then overwhelmed by the equity rout.
The risk-off flight from equities will provide a net drag on gold in the short term, said Nicky Shiels, head of metals strategy at Geneva-based MKS PAMP SA.
Bullion has already risen about 20% this year, reaching successive records despite the headwind from high borrowing costs. Prices were supported by central bank purchases, surging demand in China and haven buying amid increasing geopolitical tensions. Over the past month, the focus has shifted back to when and how much the Fed will start cutting interest rates, which is likely to provide a boost for non-interest-bearing gold.
Fed Chair Jerome Powell this week said the central bank could start to lower rates as soon as September, citing risks of further labor-market weakening.
Friday’s jobs numbers suggested a a faster deterioration in the labor market than previously thought and may give Fed officials some reason to believe that their policies are cooling the labor market too much. While the malaise dragged down bullion on Friday, eventually a more dovish approach will likely be good for gold.
“This is the first large weak job report in a year, but if it turns out to be a trend, it implies multiple Fed cuts this year,” said Shiels. “It’s a greenlight for new all-time highs in gold.”
Spot gold was 0.5% lower at $2,434.58 an ounce by 12:18 p.m. in New York, after earlier coming within less than $10 of the all-time high of $2,483.73 reached last month. The Bloomberg Dollar Spot Index fell 0.7%. Silver, platinum and palladium all declined.
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