- Gold price rose above $4,150 during Monday's London session, supported by weaker US jobs data and a sharp decline in expectations for an October Federal Reserve rate hike.
- Spot gold traded around $4,160 an ounce, but a stronger US dollar and the 10-year Treasury yield near 5.25% continued to limit the XAU/USD recovery.
- The gold price forecast remains closely tied to US Treasury yields, with $4,110 providing important support while a recovery above $4,280-$4,330 could ease the recent bearish pressure.
The gold price started the first full trading week of October on firmer ground, but bullion is finding that weaker Fed rate-hike expectations alone may not be enough to undo the damage from September’s bond-market selloff. Spot gold gained about 0.4% to $4,159.89 per ounce during Monday’s London session, while December US gold futures rose 0.64% to $4,188.70. The move follows Friday’s weaker US employment report, which sharply reduced expectations that the Federal Reserve will raise interest rates again this month.
Yet the recovery remains restrained. The US dollar strengthened again Monday and long-dated Treasury yields remain near multi-decade highs, maintaining two of the biggest headwinds facing the gold price today.
That leaves XAU/USD caught between a more favourable near-term Fed outlook and a bond market that is still refusing to give gold bulls much relief.
Why Is Gold Price Rising Today?
The immediate catalyst behind Monday’s gold price increase is the rapid repricing of Federal Reserve expectations. Friday’s US employment report showed job creation slowed more sharply than economists expected in September, while payroll growth for the previous two months was revised lower. The softer labour-market picture weakened the case for another immediate Fed increase.
Markets now price only about an 18% probability of a Fed rate hike in October, according to CME FedWatch data cited by Reuters. That is a significant reversal from late September, when markets saw the likelihood of another increase at close to 70%.
December is a different story. Traders still see around a 69% probability of a rate increase by December, keeping the broader interest-rate outlook restrictive. For gold, that distinction matters. Lower interest rates generally reduce the opportunity cost of holding non-yielding bullion, but the market has not yet moved to a clear lower-rate environment.
US Treasury Yields Remain the Biggest Headwind for Gold
The gold price outlook continues to depend heavily on what happens in the US Treasury market. The 10-year Treasury yield was hovering around 5.25%-5.26% on Monday, remaining close to levels not seen in more than two decades. This helps explain why gold’s response to weaker payrolls has been relatively restrained.
OCBC strategist Christopher Wong argued that reduced Fed hike risk alone may not produce a sustained gold rally. For the recovery to gain stronger momentum, long-term and real yields would likely need to decline more convincingly.
The bond market is being driven by more than Fed policy. Investors are also demanding higher yields amid concerns about persistent inflation, large fiscal deficits and the scale of US government borrowing.
US government debt surpassed $40 trillion in August, while annual interest costs on that debt are approaching $1 trillion. Those fiscal concerns can provide longer-term support for gold as a store of value, but they are simultaneously contributing to higher bond yields, creating an unusual push-and-pull for bullion
Stronger US Dollar Caps XAU/USD Gains
The US dollar is providing another obstacle. The Dollar Index gained around 0.3% on Monday, limiting gold’s advance despite the dramatic reduction in October Fed hike expectations. A stronger dollar typically makes dollar-denominated gold more expensive for buyers using other currencies.
Dollar demand has also been supported by weakness elsewhere, particularly in Europe. Concerns about France’s fiscal position pushed the euro to a 17-month low Monday, adding another source of support for the greenback.
This creates a difficult setup for XAU/USD: Fed expectations have turned more supportive, but neither the dollar nor long-term yields has weakened enough to give gold a clear path higher.
Lower Oil Prices Ease Inflation Pressure on Gold
One important headwind has begun to soften. Oil prices moved lower Monday as rising Middle East exports and the release of emergency fuel stocks eased some of the supply concerns that drove crude sharply higher in September. That matters because the recent oil surge had revived fears of another inflation shock.
Those concerns were a major factor behind gold’s September selloff. On September 28, spot gold plunged as much as 4% and touched $4,110.55, its lowest level since early August, as rising oil prices increased expectations for tighter Fed policy.
If oil continues retreating, inflation expectations could ease further. That could eventually allow long-term Treasury yields to fall, removing one of the main barriers to a stronger gold price recovery.
Gold Price Forecast: Can XAU/USD Recover Above $4,200?
The near-term gold price forecast remains mixed. Gold has successfully moved away from the recent low around $4,110, making that area the first significant support to watch. Below it, OCBC identifies $4,030 and $3,944 as additional downside levels. The upside remains more difficult.
The $4,200 level is the first psychological hurdle. Beyond that, the $4,280-$4,330 region contains several important moving averages and represents a stronger test of whether the recent bearish trend is losing control. OCBC sees resistance around $4,300-$4,350, followed by $4,460.
For now, the October Fed repricing gives gold a reason to recover, but Treasury yields remain the missing piece. A sustained decline in long-term yields alongside a weaker dollar would provide a stronger foundation for XAU/USD to extend its rebound.
Until then, gold above $4,150 represents a recovery, but not yet a confirmed reversal.