Gold prices rose slightly after posting their biggest weekly decline since June, supported by a slowdown in the US labor market that reduced expectations for another Federal Reserve interest rate hike, while elevated bond yields and rising oil prices continued to weigh on the precious metal.
US nonfarm payrolls increased by just 29,000 in September, according to the latest data, coming in below analysts’ expectations. The weaker employment figures reduced pressure on the Federal Reserve to move quickly to raise borrowing costs in response to persistent inflation.
Markets are currently pricing in about a 20% probability of an October interest rate hike, down sharply from around 70% a week earlier. Higher interest rates tend to reduce gold’s appeal because the metal does not generate income.
The slowdown in the labor market comes after gold fell more than 6% in September, marking its steepest monthly decline since June, as investors worried that energy driven inflation could keep interest rates elevated for longer. Even so, Federal Reserve officials continued to push back against expectations of an imminent rate increase. Minutes from the Federal Reserve meeting that saw interest rates raised for the first time in three years are expected to be released and could provide further signals about the direction of monetary policy.
Elsewhere, oil prices rose as the conflict in the Middle East widened, with Saudi backed forces launching an operation in Yemen aimed at retaking areas controlled by the Iran backed Houthis. Higher energy prices could keep inflationary pressures elevated and complicate the Federal Reserve’s policy outlook, even as the weak jobs report reduces short term pressure for another rate increase.
US Treasury yields also remained elevated, with some rates reaching their highest levels in more than two decades. US Treasury Secretary Scott Bessent played down concerns about rising borrowing costs, saying that higher yields were broadly in line with global trends.
According to ANZ, the combination of weaker labor market data and lower expectations for an October rate hike is providing some support for gold. However, elevated bond yields and renewed inflation risks linked to energy prices continue to limit the metal’s potential gains.
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