Gold Holds Flat as Strong Dollar and High Yields Offset Falling Rate-Hike Odds

Recent U.S. employment data have weakened the case for an immediate rate increase. September job growth came in well below expectations, while employment figures for the previous two months were revised downward. As a result, markets reduced the probability of an October rate hike to 22%, compared with around 70% the previous week. Lower expectations for near-term tightening can support gold by reducing the anticipated opportunity cost of holding an asset that pays no interest.

However, expectations for December remain considerably higher, with markets pricing in an 84% probability of another rate increase. This suggests investors have become less convinced that the Fed will tighten immediately, but still expect inflation risks could require further action before the end of the year. Consequently, the decline in October rate-hike expectations has provided only limited support for bullion.

The U.S. dollar strengthened, making dollar-priced gold more expensive for buyers using other currencies. Meanwhile, 10-year Treasury yields remained near their highest levels in roughly two decades. Higher yields increase the returns available from interest-bearing assets, making gold less attractive by comparison. These factors have offset the support from weaker economic data and reduced expectations for an October rate hike.

Looking further ahead, precious metals consultancy Metals Focus expects gold to reach new all-time highs in 2027, forecasting an average price of $5,330 per troy ounce. The firm expects investors to increasingly seek alternatives to traditional dollar-denominated assets. This longer-term outlook contrasts with the current market environment, where a strong dollar and elevated yields continue to constrain prices.