Gold drops below $4,200! This year's gains are wiped out, with the probability of interest rate hikes soaring to 70%, and safe-haven assets collectively retreating.

International gold prices fell below $4,200 per ounce during European trading hours on June 10. COMEX August-delivered gold futures closed at $4,188.70, down 2.28% for the day, with a year-to-date decline of 3.51%. This marks a complete reset of this year's gains.
(Background: No rate cut in sight! Bitcoin drops below $63k, analysts warn: the market has entered a distribution phase)
(Additional context: US May CPI may hit a new high in over three years, signaling no signs of inflation cooling yet)

Key Summary

• COMEX August gold futures at $4,188.70, down 2.28% for the day, with a year-to-date decline of 3.51%
• US non-farm payrolls data significantly exceeded expectations, indicating a resilient labor market, with expectations for rate hikes rapidly increasing
• CME FedWatch shows the probability of the Federal Reserve raising interest rates by at least 25 basis points by the end of the year approaching 70%, putting pressure on non-yielding assets

Gold hit record highs in the first half of this year, driven by central bank gold purchases, geopolitical uncertainties, and rate cut expectations, leading the market to believe a bullish gold cycle was already written. But an unexpectedly strong non-farm payroll report tore up that script within hours.

On June 10, during Asian trading hours, gold prices initially weakened, and after entering European hours, the decline accelerated, briefly breaking below $4,200 per ounce. As of 17:15 Beijing time, COMEX August gold futures were at $4,187.7, down 1.96% intraday. At current prices, international gold has fallen 3.46% this year, fully reversing its gains since the start of the year.

Rate hike expectations crush gold, the rate cut script is completely reversed

The trigger for this decline was last Friday’s May non-farm payroll data: 172k new jobs added, far exceeding the expected 85k, with the unemployment rate holding at 4.3%, and hourly wages rising 3.4% annually. The data indicates the US labor market remains strong, significantly reducing the Fed’s room to cut rates in the second half of the year.

More critically, the macro environment has shifted. Ongoing conflicts in the Middle East continue to push energy prices higher. April’s CPI annual growth rate surged to 3.8%, hitting a three-year high, with inflation risks still looming. Against this backdrop, market expectations for the Fed have flipped from “when to cut rates” to “when to raise rates.”

According to CME’s FedWatch tool, the market currently estimates nearly a 70% chance that the Fed will raise interest rates by at least 25 basis points by the end of this year. Once the Fed begins rate hikes, a stronger dollar and rising treasury yields will directly weaken the appeal of non-yielding assets like gold. This not only impacts gold but also puts pressure on cryptocurrencies like Bitcoin and Ethereum, which have recently experienced capital outflows. Last week, BTC fell below $60k.

For gold investors, the sense of security accumulated in the first five months of this year has evaporated within a week. The upcoming May CPI data tonight will be crucial for short-term direction. If inflation exceeds expectations again, the rate hike narrative will become even more solid, and gold prices may have further downside.

The above is investment advice.

Frequently Asked Questions

Why has gold’s gain this year been wiped out?

Mainly because the US May non-farm payrolls data far exceeded expectations (172k vs. 85k), combined with April’s CPI at 3.8%, a three-year high. Market expectations for the Fed to raise rates by year-end are approaching 70%, reducing the attractiveness of non-yielding assets.

What impact do rate hikes by the Fed have on gold and cryptocurrencies?

Rate hikes boost the dollar and treasury yields, leading to capital outflows from non-yielding or speculative assets like gold and Bitcoin. Last week, BTC dropped below $60k, and gold fell below $4,200, with both experiencing downward pressure simultaneously.