Gold prices edged higher on Monday after suffering a sharp weekly decline, as weaker U.S. labor market data reduced expectations for another Federal Reserve rate hike.
However, elevated Treasury yields and rising oil prices continued to limit the upside for bullion.
By 09:38 ET, spot gold was up around 0.1% at $4,145.80 per ounce. Gold futures gained approximately 0.3% to $4,173.25 per ounce.
Weak U.S. Jobs Data Supports Gold Prices
Gold found some support after Friday’s weaker-than-expected U.S. employment report.
U.S. nonfarm payrolls increased by only 29,000 in September, falling short of market expectations.
The disappointing labor data eased pressure on the Federal Reserve to raise interest rates again in the near term.
Neil Welsh, Head of Metals at Britannia Global Markets, noted that the weaker payrolls report helped gold stabilize following its steep weekly decline.
Fed Rate Hike Expectations Fall Sharply
Financial markets have significantly reduced expectations for another Federal Reserve rate increase in October.
Traders are now pricing in roughly a 20% chance of a rate hike this month, compared with around 70% just one week earlier.
Lower expectations for higher interest rates are generally positive for gold.
Because gold does not pay interest, higher borrowing costs can make interest-bearing assets such as bonds more attractive by comparison.
Gold Remains Under Pressure After September Decline
Despite Monday’s modest recovery, gold remains under pressure after falling more than 6% in September.
That marked its steepest monthly decline since June.
Concerns about persistent inflation, particularly from higher energy prices, had increased expectations that interest rates could remain elevated for longer.
Those concerns contributed to the recent sell-off in precious metals.
Fed Minutes Could Provide Further Direction
Federal Reserve officials have recently pushed back against expectations of an immediate additional rate increase.
Investors will therefore closely monitor the minutes from the Fed’s September policy meeting, which are scheduled for release later this week.
At that meeting, policymakers raised interest rates for the first time in three years.
The minutes could provide new clues about how officials view inflation, economic growth and the path of monetary policy.
Rising Oil Prices Keep Inflation Risks Elevated
Inflation concerns have not disappeared despite the weaker labor market.
Oil prices have risen as tensions in the Middle East continue to escalate.
In Yemen, Saudi-backed forces launched an operation aimed at retaking territory controlled by the Iran-backed Houthis.
Higher oil and energy prices could keep inflation elevated, complicating the Federal Reserve’s policy outlook.
As a result, the weaker jobs report may reduce near-term rate hike pressure, but renewed energy inflation remains an important risk.
High Treasury Yields Limit Gold’s Upside
U.S. Treasury yields have also remained elevated, with some maturities trading near their highest levels in more than two decades.
Higher bond yields can weigh on gold because they increase the opportunity cost of holding a non-yielding asset.
U.S. Treasury Secretary Scott Bessent downplayed concerns about rising borrowing costs, saying higher yields were broadly consistent with developments in global markets.
Gold Outlook Remains Mixed
The current environment presents both positive and negative factors for gold prices.
Weaker employment data and lower expectations for an October Fed rate hike are providing support.
At the same time, elevated Treasury yields, higher oil prices and persistent inflation risks are limiting the metal’s ability to stage a stronger recovery.
According to ANZ, these competing forces could continue to influence gold prices as investors assess upcoming Federal Reserve signals and U.S. economic data.
