Gold Jumps 2.6% as Fed's Waller Signals Support for Holding Rates Steady

The main catalyst was comments from Federal Reserve Governor Christopher Waller, who said he would support keeping interest rates unchanged if upcoming data confirms that inflation pressures are moderating. His comments reduced the market's expectations for a September rate increase.

Market pricing for a September rate hike fell to around 54%, down from approximately 62% previously. This represented a significant shift in expectations after markets had spent the previous week increasing bets on a rate increase following hawkish comments from Fed Chair Kevin Warsh.

The U.S. dollar and Treasury yields also moved lower, providing another layer of support for bullion. A weaker dollar makes gold cheaper for buyers using other currencies, while lower Treasury yields reduce the relative attractiveness of interest-bearing assets compared with gold.

The latest employment data provided some support for the softer-rate narrative. U.S. private payroll growth increased only moderately in August, although investors largely looked past the ADP report because Friday's official nonfarm payrolls data is considered a much more important indicator for monetary-policy expectations.

Meanwhile, geopolitical tensions continued to add volatility to energy markets. Oil prices remained elevated amid tensions involving the United States and Iran. Higher oil prices could increase inflation pressure and potentially limit the Federal Reserve's ability to ease policy, creating a counterweight to gold's rally.