Gold prices reversed earlier losses on Monday and climbed to a two-month high, extending the previous week’s 7% surge as weak U.S. labor-market data increased expectations that the Federal Reserve could move toward lower interest rates.
By 11:51 a.m. ET, spot gold was up 0.4% at $4,357.03 an ounce, while gold futures were down 0.4% at $4,384.15 an ounce.
The metal had fallen earlier in U.S. trading as a firmer dollar and renewed uncertainty around the Strait of Hormuz kept inflation concerns alive. But the broader support from weaker employment data and changing expectations for monetary policy helped bullion recover.
Weak jobs data changes the interest-rate outlook
The latest move in gold followed Friday’s U.S. employment report, which showed that the economy unexpectedly lost jobs in July.
Employment gains from the previous two months were also revised sharply lower.
That combination led markets to reduce expectations that the Federal Reserve would raise interest rates in September.
For gold, that shift matters because lower interest rates generally reduce the opportunity cost of holding an asset that does not pay interest.
When yields fall or expectations of tighter monetary policy weaken, bullion often becomes relatively more attractive.
Gold extends a strong weekly rally
Gold had already surged about 7% during the previous week.
On Friday, prices reached their highest level since June 17 after the weak jobs report changed the market’s view of the Fed.
The Monday rebound pushed spot prices to a fresh two-month high.
Over the last month, gold has gained more than 5%, supported partly by the changing interest-rate outlook and continued safe-haven demand.
Inflation remains the next major test
The next important catalyst for gold will be U.S. inflation data due later this week.
Markets are particularly focused on Wednesday’s inflation figures because they could influence expectations for Federal Reserve policy.
John Murillo, chief business officer at B2Broker, said the inflation report would be the real test for the metal.
In his view, relatively modest inflation growth would leave little justification for tighter monetary policy or additional rate hikes.
He said such a scenario could move gold closer to $4,400 an ounce, while a move toward $4,500 would likely require more positive news from the labor market.
Inflation could complicate the Fed’s decision
The central bank is facing a difficult balance.
Weak employment data argues against further tightening because higher rates could put additional pressure on jobs and economic activity.
However, persistent inflation could still push policymakers toward a more restrictive stance.
Energy prices are particularly important because the Iran war and disruption around the Strait of Hormuz have raised concerns about renewed price pressures.
A stronger-than-expected inflation report could therefore revive expectations for tighter policy and weigh on gold.
Strait of Hormuz uncertainty supports safe-haven demand
Geopolitical tensions are also providing support for the precious metal.
Iran and the United States appear to remain far apart over conditions for reopening the Strait of Hormuz.
Tehran has issued tough demands, while U.S. President Donald Trump has argued that economic pressure will eventually bring Iran back to negotiations.
The lack of progress has weakened hopes for a near-term agreement.
Before the Iran war began in late February, roughly one-fifth of global oil and liquefied natural gas flows passed through the Strait of Hormuz.
Its continued closure has pushed energy prices higher and created risks for the global economy.
Higher energy prices keep inflation concerns alive
The disruption to energy flows creates an unusual backdrop for gold.
On one hand, geopolitical risk supports demand for safe-haven assets.
On the other, higher oil and gas prices can increase inflation and encourage the Federal Reserve to keep interest rates high.
That creates competing forces for bullion.
The metal can benefit from uncertainty while still facing pressure if inflation causes bond yields and the dollar to rise.
Dollar strength briefly pressured gold
The U.S. dollar was slightly firmer during Monday’s session.
The dollar index, which tracks the currency against a basket of major peers, was up about 0.2% at 99.72.
A stronger dollar can make gold more expensive for buyers using other currencies.
That relationship helped pressure bullion earlier in the session.
However, the metal later recovered as investors continued to focus on the weaker U.S. employment picture and the possibility of easier monetary policy.
The dollar is also benefiting from safe-haven demand
The U.S. currency has itself acted as a safe haven during the geopolitical crisis.
Investors have been supported by the view that the American economy, as a major energy exporter, may be better positioned than some other economies to absorb disruptions caused by the Iran war.
That has created an unusual environment in which both gold and the dollar can attract defensive demand at the same time.
The balance between the two will remain important for bullion prices.
UBS keeps a $5,000 gold target
UBS maintained a price target of $5,000 an ounce for gold.
The bank cited three structural factors supporting its view.
The first is the potential for lower real yields if the Federal Reserve eventually eases monetary policy.
The second is expected dollar softness linked to U.S. fiscal and external deficits.
The third is continued central-bank demand, which UBS sees as providing a floor under prices.
The bank believes these forces could continue to support gold through 2027.
Central banks remain an important source of demand
Central-bank purchases continue to play an important role in the gold market.
Analysts at ING said the People’s Bank of China increased its gold reserves by around 20 tonnes in its largest monthly addition since October 2023.
Large official-sector purchases can reduce available supply and reinforce the perception of gold as a strategic reserve asset.
This demand has become an important part of the broader bullish case for bullion.
Tether buying also supports bullion
The source also identified heavy buying by crypto company Tether as another factor supporting gold.
That demand adds a different source of institutional interest beyond traditional central banks and financial investors.
Together with stronger central-bank purchases in the second quarter, it has helped support prices even as monetary-policy expectations have shifted.
The source does not quantify Tether’s exact contribution to the latest move.
Gold remains highly sensitive to real yields
The longer-term outlook continues to depend heavily on interest rates.
Gold does not generate income, so its relative attractiveness generally improves when inflation-adjusted bond yields decline.
If the Federal Reserve eventually cuts rates while inflation also moderates, real yields could fall.
That environment would be broadly supportive for gold.
By contrast, renewed tightening or persistently high real yields could limit further gains.
The labor market now matters more for bullion
Friday’s weak jobs report has increased the importance of future employment data.
A sustained deterioration in hiring could strengthen expectations for lower rates.
However, a sudden rebound in the labor market could reverse some of those expectations.
The gold market is therefore becoming increasingly sensitive to the interaction between employment and inflation.
One weak jobs report alone does not establish a long-term trend, but it has clearly changed short-term market positioning.
What the market should watch next
The main focus will be Wednesday’s U.S. inflation data.
A softer-than-expected reading could reinforce expectations for easier monetary policy and support gold.
A hotter reading could revive concerns about rate hikes.
Investors will also watch the dollar index, Treasury yields and developments around the Strait of Hormuz.
Further central-bank purchases and signs of continued institutional demand could also influence the longer-term outlook.
Conclusion
Gold climbed to a two-month high on Monday after reversing earlier losses, supported by weaker U.S. jobs data and growing expectations that the Federal Reserve could move toward easier policy.
Spot gold rose to around $4,357 an ounce after gaining 7% in the previous week.
Geopolitical uncertainty around the Strait of Hormuz continues to support safe-haven demand, while stronger energy prices and a firmer dollar create countervailing pressure.
Final Takeaway
Gold’s immediate direction now depends heavily on U.S. inflation data. Weak price pressures would reinforce the case for lower rates and could extend the rally, while persistent inflation could revive tightening expectations. Beyond the short term, central-bank buying, real yields and geopolitical risk remain the main structural drivers.
