Gold rises as Fed rate hike expectations ease

Highlights

Spot gold price nears $4,170.
Weak U.S. hiring has reduced October hike bets.
High Treasury yields remain a drag on bullion.

Spot gold was up 0.67% at $4,168.225 an ounce, while December gold futures gained 0.74% to $4,193.05, according to the latest market data. September nonfarm payrolls increased by just 29,000, below every estimate in its economist survey and giving the Fed more room to wait before raising borrowing costs again, Bloomberg reported.

Weak hiring changes the rate calculation

The jobs report has produced a significant shift in interest rate expectations. Markets now assign roughly a 20% probability to a Fed increase in October, compared with about 70% a week earlier.

That repricing is supportive for gold because the metal pays no interest and tends to face greater competition from bonds when borrowing costs rise. The change follows the Fed's September rate increase, its first in three years.

Gold is nevertheless recovering from a substantial setback. Bullion lost more than 6% in September, hurt by higher bond yields, renewed inflation concerns, and a stronger dollar. Last week alone, it declined 3.4%, its steepest weekly fall since June.

Bond yields still cap the recovery

The softer labor data has not removed the pressure coming from fixed-income markets. The 10-year Treasury yield remains around 5.2%, leaving investors with unusually high returns on government debt and raising the opportunity cost of holding gold.

Inflation is another complication. Brent crude remains above $100 a barrel, keeping energy costs in focus after they contributed to last month's renewed inflation concerns. At the same time, the Bloomberg Dollar Spot Index rose 0.3% after three consecutive weekly gains. A stronger U.S. currency makes dollar-denominated gold more expensive for many overseas buyers.

The next important piece of information will come from the minutes of the Fed's September meeting. They may provide more detail on how officials are balancing weaker employment against persistent inflation and elevated borrowing costs.

Gold gets support, but competing forces remain

The latest jobs figures have weakened one of the main arguments for an immediate rate increase, giving gold room to recover after September's selloff. That does not remove the competing pressure from high bond yields, a firm dollar, and energy-driven inflation.

For bullion, the balance now depends less on a single economic release than on whether the slowdown in hiring continues while inflation remains persistent. A Fed that can wait longer before tightening would reduce one source of pressure on gold, while sustained strength in Treasury yields would continue to compete with the metal for investor demand.

We have previously highlighted that the euro hits a 17-month low as France's debt worries intensify.

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