Gold prices rose slightly during trading on Monday, supported by a weaker dollar and recent weak US economic data, which lowered market expectations about the Federal Reserve raising interest rates next month.
Spot gold rose 0.4% to $4,391.49 an ounce, after prices hit their highest level in more than two months last week.
US gold futures for December delivery also rose 0.3% to $4,448.40 an ounce.
In contrast, the US dollar index fell by 0.2%, making metals priced in US dollars less expensive for holders of other currencies, which provides additional support for gold demand.
Weak US data supports the precious metal
Tim Waterer, senior market analyst at KCM Trade, said gold started the week strongly, as weak inflation data continued to weigh on the dollar, giving the metal additional room to move towards the $4,400 per ounce level.
He added that gold remaining above $4,500 would likely require further weakness in the dollar or a more pronounced decline in energy prices.
Expectations for a US interest rate hike have declined following a surprise drop in non-farm payrolls during July, coinciding with data showing that consumer price inflation was relatively moderate, which reduced the likelihood of monetary policy tightening at the next meeting of the Federal Reserve.
According to the US interest rate monitoring tool available on Investing Saudi Arabia, traders are currently pricing in a probability of about 30% for an interest rate hike in September, compared to about 47% a month ago.
All eyes are on the Federal Reserve minutes.
Gold typically benefits from lower interest rates, because declining returns reduce the opportunity cost of holding the precious metal, which does not generate a periodic return, thus enhancing its appeal compared to assets that provide interest-linked returns.
Markets are currently awaiting the release of the minutes from the Federal Reserve meeting held in July, scheduled for publication on Wednesday, looking for further clues about the direction of monetary policymakers and the path of interest rates in the coming period.
This comes at a time when markets are trying to determine whether the weakness of the labor market and the decline in some inflation indicators are enough to prompt the central bank to keep interest rates unchanged, or whether inflation remaining above its 2% target will keep the option of raising interest rates on the table.
The minutes of the meeting are of particular importance to gold, as any signals pointing towards a more accommodative monetary policy could put pressure on the dollar and bond yields, creating a favorable environment for the metal to continue rising.
Geopolitical tensions add support for gold.
On the geopolitical front, envoys of US President Donald Trump held meetings with Egyptian, Qatari and Turkish mediators in Cairo on Sunday, in an attempt to advance Trump’s peace plan for Gaza, as Israel continued to launch airstrikes on the Strip.
Geopolitical developments remain one of the factors closely monitored by gold markets, as investors typically turn to the precious metal as one of the most prominent safe-haven assets during times of escalating political and military risks.
In other metals markets, spot silver rose 1.4% to $65.57 an ounce, while platinum fell 0.1% to $1,746.43, and palladium climbed 1.4% to $1,331.10 an ounce.
The current movement of gold indicates the continued overlap of several factors supporting the metal, most notably the weakness of the dollar, the decline in expectations of interest rate hikes, softer US economic data, and the continuation of geopolitical risks, while the $4,500 level remains the main obstacle to completing the upward wave.
