Gold gains as October Fed rate hike prospects fade

NEW YORK: Gold prices drifted higher on Monday after recent soft economic data sharply lowered expectations of a Federal Reserve rate hike in October, increasing the appeal of the non-yielding asset.

Spot gold was up 0.4 per cent at US$4,158.17 per ounce by 0150 GMT. US gold futures for December delivery rose 0.6 per cent to US$4,186.40.

US job growth slowed more than expected in September, and the non-farm payrolls count for the prior two months was revised sharply lower, data showed on Friday.

"The softer labour market data has helped dial back October Fed hike expectations, which is providing gold some support. But the market is still treating the Fed's broader hiking cycle as intact even if a pause occurs in October," said Tim Waterer, chief market analyst at KCM Trade.

Traders now see a 22 per cent probability of a Fed rate hike in October, down from 64 per cent a week ago, while still pricing in an 87 per cent chance of an increase in December, according to the CME FedWatch Tool.

The US central bank last month raised its benchmark overnight interest rate by 25 basis points to the 3.75-4.00 per cent range, its first rate increase in three years.

On the geopolitical front, Yemen's Saudi-backed, internationally recognised government said on Sunday it was launching a major military campaign to recapture all areas controlled by the Iran-backed Houthis.

"Middle East developments will continue to matter for gold, particularly through their impact on oil prices and the broader inflation outlook. Volatility is likely to remain elevated while oil, yields and Fed expectations stay in flux," said Waterer.

Oil prices slipped as rising crude exports from the Middle East and G7 nations' release of oil added to supplies despite ongoing concerns about further damage to Gulf oil infrastructure amid the Iran war.

Among other metals, spot silver gained 1.7 per cent to US$61.40 per ounce, platinum was up 0.6 per cent to US$1,708.48 and palladium firmed 0.6 per cent to US$1,175.04.