Gold (XAU/USD) climbed toward $3,590 during Monday’s Asian session, trading close to record highs. The move comes as disappointing U.S. labor market data bolstered market confidence that the Federal Reserve will move ahead with an interest rate cut later this month.
U.S. labor market weakness fuels Fed policy bets
Friday’s Nonfarm Payrolls (NFP) report confirmed a slowdown in U.S. hiring for August, while the unemployment rate rose to its highest level since 2021. These figures reinforced the view that labor market conditions in the world’s largest economy are weakening. Consequently, expectations for a Fed rate cut have surged, underpinning demand for gold. Lower interest rates typically reduce the opportunity cost of holding non-yielding assets like gold, making the precious metal more attractive.
Rate cut odds strengthen ahead of september meeting
Market participants are now pricing in a near-certain rate reduction at the Fed’s upcoming September 17 meeting. According to CME FedWatch data, there is an 84% probability of a 25 basis points (bps) cut, while the likelihood of a more aggressive 50 bps cut stands at 16%.
Central bank demand adds to bullish momentum
Further support for gold prices comes from sustained central bank buying. Official data released on Sunday showed that the People’s Bank of China (PBoC) increased its gold reserves for the 10th consecutive month in August. Holdings rose to 74.02 million fine troy ounces from 73.96 million in July, highlighting continued diversification away from the U.S. dollar.
Focus shifts to U.S. inflation data
Looking ahead, traders will closely monitor Wednesday’s release of the U.S. Producer Price Index (PPI) for August. Stronger-than-expected inflation data could lend support to the U.S. dollar and apply downward pressure on gold, while softer results may reinforce bullish momentum in the precious metal.
