Hotter US ECI Pressures Gold
Gold prices continued to decline after the US released its second-quarter Employment Cost Index (ECI) at 0.9%—higher than the market forecast of 0.8% and matching the previous period's figure. The results indicate that corporate labor costs have not slowed as anticipated.
The US Bureau of Labor Statistics reported that total compensation costs for civilian workers grew by 0.9% during the three months ending in June. Wages and salaries rose by 0.9%, while benefit costs increased by 1%. On an annual basis, compensation costs grew by 3.4%, with wages and salaries up 3.2% and benefits rising 3.8%.
The data heightened concerns that inflationary pressures, particularly in the services sector, remain stubborn. High labor costs could prompt companies to maintain selling prices to protect profit margins. This scenario reinforces the likelihood that the Federal Reserve will keep interest rates high for longer—or even raise them again—should subsequent inflation data remain elevated.
According to Newsmaker analysis, the ECI release compounded the pressure already weighing on gold due to the dollar's recovery and high US bond yields. Prior to the data release, gold had already weakened by more than 1% as the dollar index climbed and markets anticipated sustained high US interest rates. The higher-than-expected ECI gave market participants further reason to reduce positions in gold, an asset that yields no return.
Market Impact :
Gold: Likely to remain under pressure, as expectations of high interest rates increase the opportunity cost of holding the precious metal.
US Dollar: Potential for continued strengthening, as the data reinforces the likelihood of a more hawkish Fed policy.
US Bond Yields: Likely to rise as investors adjust their interest rate and inflation expectations.
Inflation: Data indicates that labor cost pressures have not cooled, risking a slower disinflation process.
US Stocks: Potential for downward pressure, particularly on technology stocks and companies sensitive to borrowing costs. Conclusion: An ECI of 0.9% represents a negative sentiment for gold and a positive one for the dollar in the short term. However, gold could still rebound if the dollar and yields fail to extend their gains, or if geopolitical tensions reignite demand for safe-haven assets. (CP)
