Gold climbs above $4,150 as Fed rate hike odds shift

Gold prices surged past $4,150 an ounce on Monday, driven by a weaker-than-expected US jobs report that reduced the likelihood of a Federal Reserve rate hike in October. Spot gold climbed 0.4% to $4,158.17, while December futures rose 0.6% to $4,186.40. Despite this, futures markets still priced an 87% chance of a Fed rate increase by December, suggesting a shift in timing rather than a change in the broader tightening narrative.

The September payrolls report showed only 29,000 new jobs, with unemployment rising to 4.2%. This weakened outlook lowered the probability of an October rate hike from 64% to 22% in just a week. Gold, highly sensitive to real rates and the dollar, benefited from the delayed rate hike, giving investors more time to speculate that labor market weakness could halt further tightening.

However, challenges remain. The 10-year Treasury yield hovered around 5.26%, and the dollar stayed strong as the euro weakened due to French fiscal concerns. Société Générale strategists noted that gold is caught between strong demand from central banks and ETFs, and macro headwinds like a firm dollar and high rates.

Support for gold also comes from sustained demand. US-listed gold ETFs attracted $3.8 billion in September, following $7.9 billion in August. Globally, physically backed gold ETFs saw $18 billion in inflows in August, the second-largest monthly inflow on record, pushing holdings to a record 4,189 tonnes. China's central bank added about 20 tonnes in August, its largest purchase since October 2023.

Goldman Sachs analysts Lina Thomas and Daan Struyven emphasized the importance of sovereign demand in their $4,900 year-end forecast, cautioning that a sudden rise in Fed hike expectations could trigger a sharp correction. The next key test will be the September CPI report on October 14, which could influence Treasury yields and Fed policy expectations. Geopolitical tensions, particularly in Yemen and the Middle East, continue to support safe-haven demand for gold.