Gold prices saw fluctuations on Monday, hovering around $4,420 an ounce, as a softer US dollar helped to offset concerns about potential interest rate hikes by the Federal Reserve and ongoing geopolitical tensions. Spot gold was observed trading between $4,412 and $4,430 per ounce during the Asian session, with one report noting a 0.45% decrease from the previous session at approximately $4,412.65 per ounce, while another indicated stability around $4,426 per ounce.
The primary driver for the downward pressure on gold was robust US employment data released on Friday. US Nonfarm Payrolls rose by 162,000 in August, significantly exceeding the market forecast of 56,000, and the unemployment rate remained at 4.1%. This strengthened the argument for the Federal Reserve to consider raising interest rates at its upcoming September 15-16 meeting. Traders are now pricing in a roughly 60% likelihood of a rate hike, up from an even chance earlier. Higher interest rates typically reduce the appeal of non-yielding assets like gold.
However, a weaker US dollar provided some counterbalancing support for gold. The US Dollar Index (DXY), which measures the dollar against a basket of major currencies, was down nearly 0.20% on the day, trading around 98.95 and near two-week lows. The dollar's weakness was partly attributed to broad Japanese Yen strength, despite hawkish Fed expectations. A weaker dollar makes gold, which is priced in the US currency, more affordable for international buyers.
Escalating tensions in the Middle East, particularly between the US and Iran, also contributed to market volatility. Following US military strikes on three Iranian crude oil tankers in response to Iran firing ballistic missiles at two US Navy ships, oil prices surged. West Texas Intermediate (WTI) traded near $90 per barrel, close to its highest level since July. While geopolitical instability often boosts gold's safe-haven appeal, in this instance, the market focused more on the inflationary impact of higher energy prices, which strengthens the case for higher interest rates and weighs on gold. Global gold exchange-traded funds, however, recorded net inflows exceeding $6.4 billion, marking a strong period of capital accumulation.
Investors are now keenly awaiting key US inflation reports later in the week, including the Producer Price Index (PPI) on Thursday and the Consumer Price Index (CPI) on Friday. Hotter inflation readings would further reinforce expectations for a Fed rate hike, potentially putting more pressure on gold, while softer figures could offer some relief to the precious metal.
