Gold recovers slightly after worst weekly drop since June

Gold prices edged higher on Monday, recovering slightly from their largest weekly drop since June. The U.S. labor market's slowdown has lowered expectations for another Federal Reserve rate hike, providing some relief to gold. However, elevated Treasury yields and rising oil prices continue to weigh on the precious metal's performance.

U.S. nonfarm payrolls rose by just 29,000 in September, missing analyst forecasts. This weaker-than-expected hiring data has reduced pressure on the Fed to raise interest rates quickly, with markets now pricing in only a 20% chance of an October rate hike, down from 70% a week earlier. Higher interest rates typically diminish gold's appeal since it does not generate interest income.

The softer labor market follows gold's over 6% decline in September, its steepest monthly drop since June, as investors feared prolonged high rates due to energy-driven inflation. Fed officials have dismissed expectations of an imminent rate increase, but minutes from their September meeting, set to be released mid-week, may offer further insights into monetary policy.

Inflation concerns persist as oil prices climb amid escalating Middle East tensions. Saudi-backed forces in Yemen launched an operation against Iran-backed Houthis, raising energy inflation risks. While weaker labor data supports gold, elevated bond yields and renewed inflation pressures limit the metal's upside, according to ANZ.