Gold prices advanced on Monday as a weaker US dollar and falling crude oil prices eased some concerns about inflation, giving investors reason to reassess the outlook for interest rates ahead of key US economic reports this week.
The recovery came as Treasury yields moved higher following stronger-than-expected employment figures, leaving markets caught between expectations of persistent inflation and the possibility that lower energy costs could reduce pressure on central banks.
Spot gold rose 1% to $4,107.01 an ounce by 1:35 p.m. ET (1830 GMT), while US gold futures for December delivery settled 1% higher at $4,114.50.
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The dollar weakened, making gold, which is priced in the US currency, less expensive for buyers using other currencies. Lower crude prices also helped ease immediate concerns that rising energy costs would force central banks to maintain restrictive monetary policies for longer.
“We’re seeing a lower US dollar index on this first day of the trading week,” said Jim Wyckoff, a market analyst at American Gold Exchange.
“We’re seeing lower crude oil prices today that suggest receding inflationary fears. That’s positive for the gold and silver markets, on ideas that lessening inflation fears will allow the central banks to lean easier on their monetary policies.”
Oil prices fell sharply after US President Donald Trump described renewed strikes on Iran as “highly unlikely” while negotiations aimed at resolving the Middle East conflict continued. However, attacks on ships near the Strait of Hormuz kept concerns about energy supply disruptions alive.
The conflict, which began in late February with the US-Israeli war on Iran, has placed energy markets at the center of inflation expectations. Higher oil prices feed into transportation, manufacturing and household energy costs, potentially forcing central banks to delay interest-rate cuts or consider further increases.
Gold’s direction of interest rates remains a central influence. The metal does not generate interest income, making it less attractive when government bonds and other yield-bearing assets offer higher returns. A reduction in inflation fears can therefore support bullion by lowering expectations for prolonged monetary tightening, although stronger economic data can work in the opposite direction.
Gold gained around 5% last week after Democrats won control of both chambers of the US Congress in the midterm elections, a political outcome that raised hopes for an end to the Iran conflict. However, the rally lost some momentum after stronger-than-expected US employment figures on Friday reinforced expectations that the Federal Reserve could keep interest rates higher for longer.
Traders were pricing in an 82.2% probability of a December rate hike, according to CME’s FedWatch tool. That expectation presents a significant challenge for gold because higher borrowing costs tend to support the dollar and increase the opportunity cost of holding non-yielding assets.
The immediate focus is now on the US consumer price index report for October, due on Tuesday, followed by producer price data on Friday. The two reports could provide a clearer indication of whether inflation is accelerating again and how much room the Federal Reserve has to adjust monetary policy.
Economists surveyed by Trading Economics expect annual headline inflation to rise to 3.9% in October from 3.7% in September. Core CPI, which excludes food and energy, is forecast to increase to 2.8% from 2.6%.
The distinction between headline and core inflation has become the focal point of some investors. Lower oil prices could moderate the headline reading, but persistent price increases across services and other underlying components would make it harder for the Fed to ease policy. A stronger core reading could reinforce expectations of higher rates, putting renewed pressure on bullion and other precious metals.
The employment report has already shifted the interest-rate debate. US nonfarm payrolls increased by 165,000 in October, significantly above economists’ expectations of 59,000, while the unemployment rate declined to 4.1%. The figures suggest the labor market remains more resilient than anticipated, giving policymakers less immediate reason to prioritize monetary easing.
That strength was also visible in the Treasury market on Monday. The two-year Treasury yield, which is particularly sensitive to expectations for Federal Reserve policy, rose more than four basis points to 4.564%. The benchmark 10-year yield increased almost two basis points to 4.876%, while the 30-year yield edged up less than one basis point to 5.264%.
Bond yields and prices move in opposite directions. The increase in yields indicates that investors continue to demand higher returns on government debt, partly because of concerns about inflation and the possibility that interest rates will remain elevated.
The decline in oil prices offered some relief. West Texas Intermediate crude futures for December delivery fell more than 3% to about $87 a barrel after Trump’s comments on the prospects of renewed attacks on Iran. However, the security situation around the Strait of Hormuz means that the risk of further supply disruptions has not disappeared.
Beyond the immediate influence of US monetary policy, central-bank demand remains an important source of support for the gold market. China’s central bank added approximately 25.8 metric tons of gold to its reserves in October, its largest monthly purchase in three years, according to World Gold Council data.
The purchases indicate that official-sector demand remains relevant even as short-term prices respond to movements in the dollar, bond yields and geopolitical developments. Central banks have been an important source of gold demand, with reserve diversification providing a different investment motive from the interest-rate and currency considerations that influence private investors.
China’s October buying could help boost longer-term demand, but it does not remove the pressure that higher US yields can place on prices. The immediate direction of bullion is still likely to depend heavily on the inflation data and the Fed’s response to the combination of resilient employment and changing energy prices.
Other precious metals also advanced on Monday. Spot silver rose 1.8% to $52.78 an ounce, platinum gained 1.8% to $1,561, while palladium increased 0.3% to $1,026.26.
The market is approaching the latest US inflation figures with competing forces in play. Falling oil prices and a softer dollar have supported gold, while stronger employment data and rising Treasury yields have reinforced the case for tighter monetary policy. If inflation accelerates, the Fed’s ability to ease rates could become more constrained. If energy costs continue to decline and underlying price pressures moderate, expectations of future monetary easing could strengthen.