Gold prices extended their recovery on Thursday as the US dollar weakened and Treasury yields retreated from recent highs. Investors also turned their attention to US payroll data that could reshape expectations for a September Federal Reserve rate increase.
Spot gold climbed 1.2 percent to $4,440.87 an ounce by 1217 GMT on September 3. US gold futures gained 1.7 percent to $4,487.70.
Bullion had fallen to its lowest level since August 7 on Wednesday. It later reversed course and settled more than 1 percent higher.
The recovery followed a pullback in the dollar index from a nearly three-week peak. Treasury yields also eased after reaching multi-year highs.
“Modestly weaker dollar, and slightly lower U.S. rates are helping gold. With the Fed currently offering no forward guidance, gold remains highly sensitive to shifts in market expectations for the September meeting,” said UBS analyst Giovanni Staunovo.
A softer dollar makes gold less expensive for buyers using other currencies. Lower bond yields can also support bullion because gold pays no interest.
Markets weigh September rate increase
Traders placed the probability of a September interest rate hike at about 60 percent, according to the CME FedWatch Tool.
Those expectations strengthened after Federal Reserve Chair Kevin Warsh addressed the Jackson Hole Economic Policy Symposium last week. He signalled that policymakers may need to raise rates if inflation remains above target.
Warsh said recent inflation readings had not shown a meaningful improvement in underlying trends. He also noted that 54 percent of components in the personal consumption expenditures basket recorded price growth above 3 percent.
The Federal Reserve will hold its next policy meeting on September 15 and 16, its official calendar shows.
Although investors often buy gold as protection against inflation, higher borrowing costs can weaken demand. Rising rates improve returns on interest-bearing assets and raise the opportunity cost of holding bullion.
Payrolls report becomes crucial test
Markets are now waiting for the closely watched US non-farm payrolls report. The Bureau of Labor Statistics will publish the August employment figures on Friday, September 4, at 8:30 am Eastern Time.
The report follows Wednesday’s ADP employment data, which showed moderate growth in private payrolls during August.
“The payrolls report will probably be the biggest defining moment of the week. If the jobs report misses expectations, and September rate hike bets decline, that could see gold move higher,” said Ilya Spivak, head of global macro at Tastylive.
A weaker employment report could reduce expectations for an immediate rate increase and support gold. Stronger hiring, however, could reinforce the case for tighter monetary policy.
Other precious metals also advanced during Thursday’s session. Spot silver rose 0.5 percent to $65.63 an ounce, while platinum gained 0.4 percent to $1,766.19.
Palladium posted the strongest increase among the three, climbing 1.3 percent to $1,362.37. Gold’s next direction will depend heavily on payroll figures and the market’s response to the Federal Reserve outlook.
