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The gold market is ending the trading week on a sour note Friday as prices have declined substantially. Spot gold is down over $15 per ounce as the day session winds down following the release of much stronger-than-expected jobs data. The U.S. added some 528,000 jobs in July, far above the estimates for an addition of 260,000 jobs. The hot jobs data may keep the Fed on track now, and further large rate hikes could be seen in the months ahead.

The notion of an aggressive Fed has boosted the Dollar Index as well as treasury yields. Both rose in the aftermath of the non-farm payrolls data Friday, weighing on gold in the process. It will be some time before the FOMC meets again. Between now and September, investors will monitor the data stream closely. Any more data that exceeds expectations like it did today could fuel further rate hike risk. The Fed could hike by another 75-points in September if it sees fit. Today’s jobs data simply provides the Fed with no reason to consider a pause.

If the Fed is not given reason to consider taking a pause, rate hikes could continue in the same manner they have been implemented already. An aggressive Fed could take rates several points higher from current levels as it attempts to combat rampant inflation. More rate hikes may not bode well for stocks and risk assets, however, and more selling and volatility could be seen in the months ahead.

Despite the possibility of higher interest rates, the gold market could see some sustainable upside if conditions warrant. Should inflation become entrenched, for example, investors may flock to gold to preserve their purchasing power and protect their wealth. Gold could also become a viable alternative to stocks should equity markets really fall off the rails and drop significantly.

The summer doldrums are now in full swing. Gold and other markets could remain relatively sideways over the next few weeks until volumes start to return. Once traders do return, however, the gold market could potentially take off on a more sustainable run higher or lower. The bulls have done a good job, thus far, of absorbing the selling pressure. Now that gold has started to turn higher again, the longevity of the move may depend on investors focusing on the long-term rather than the short-term.

The long-term bullish narrative for gold is unchanged. If investors see value around current price levels, we expect gold to again take off to the upside. A move above the $1900 level, on a closing basis, could set the stage for a run back to all-time highs or beyond. Volatility within the market has been constrained until this past week. Should the volatility expansion continue to widen, the bulls could have a very successful month of August. The bulls first need to produce a close above the $1800 level. Doing so may attract fresh buying interest that could propel prices higher in the weeks ahead.