During Asian trading on Monday, October 5, gold failed to extend a modest rebound and was trading just below $4,150 per ounce, nearly flat for the day.

Even though Friday's U.S. September nonfarm payrolls report came in weak—only 29,000 jobs added, the unemployment rate unexpectedly rising to 4.2%, and annual wage growth slowing to 3.0%—investors chose to look past the data, and the U.S. dollar attracted strong buying again, hitting a fresh yearly high since mid-April 2025.

The dollar's strength became the key factor weighing on gold, but fading bets on a Fed rate hike in October provided some floor support for bullion. U.S. Treasury yields moved further away from multi-year highs, also a positive for non-yielding gold. Traders are now focused on the U.S. ISM services PMI data and speeches from Fed officials for further directional clues.

Soft payrolls reduce rate-hike pressure, falling Treasury yields support gold

Friday's U.S. September nonfarm payrolls report showed the economy added only 29,000 jobs, far below the downwardly revised 133,000 in August and the 90,000 expected by the market.

The unemployment rate unexpectedly rose to 4.2% from 4.1% in August, and annual wage growth slowed to 3.0%, the weakest pace since May 2021.

This data, combined with softer inflation figures released last week, significantly eased the urgency for the Fed to raise rates. As a result, U.S. Treasury yields moved further away from multi-year highs, offering some support to gold.

Dollar hits yearly high as safe-haven demand outweighs weak data

Despite the weak U.S. employment data, the dollar regained strong buying on Monday, refreshing its yearly high since April 2025.

This move suggests the market is looking beyond a single data point and focusing instead on broader geopolitical risks. The Middle East conflict continues, with Iranian Foreign Minister Araghchi saying there is no military solution to the conflict with the U.S., but Tehran remains ready to return to conflict; Iranian Parliament Speaker Qalibaf said the Strait of Hormuz will not open until Iran's conditions are met.

The head of Yemen's administrative authority announced the start of military operations to retake remaining territory controlled by Houthi forces. In addition, Ukraine reported that Russia launched deadly airstrikes on Sunday against the Kyiv region, Kharkiv, and Dnipro.

These persistent geopolitical risk premiums favor dollar bulls, keeping gold bulls cautious.

Market pricing: October hike odds fall, but year-end hike probability remains high

The CME FedWatch Tool shows traders currently price about an 85% probability that the Fed will raise rates before the end of the year. Still, expectations for an October hike have clearly cooled.

Well-known institution ABN Amro believes the latest jobs report is "consistent with our baseline scenario," and that the apparent recovery in the labor market in the previous two reports was "somewhat of an illusion." The firm noted that the three-month average of 51,000 new jobs is solid given labor supply conditions, but does not indicate an overheated or tight market.

The softer tone of the employment data, especially combined with this week's unexpected downside in the PCE report, removed the urgency for a Fed rate hike in October. But ABN Amro still maintains that "persistent inflationary pressure from the energy shock" will prompt the Fed to hike once more in December, for reasons similar to September—preventing price pass-through to consumers and wages.

What to watch next: ISM services PMI and Fed speeches

Gold is currently caught in a tug-of-war: a stronger dollar and safe-haven demand weigh on prices, while fading rate-hike expectations and falling Treasury yields provide support.

Traders are now focused on the release of the U.S. ISM services PMI data and speeches from influential FOMC members, which should provide some driving force for gold prices.

If the ISM data comes in stronger than expected, it could further boost the dollar and weigh on gold; if the data is weaker than expected, it could reinforce the logic of fading rate-hike expectations and give gold room to rebound.

On Fed officials' speeches, any dovish remarks could provide additional support for gold, while hawkish comments could reignite rate-hike expectations.

Summary

Gold is currently in a tug-of-war between bulls and bears. Weak U.S. employment data reduced the urgency for a Fed rate hike in October, and falling Treasury yields provided some support for gold.

But the dollar's strength—hitting a yearly high since mid-April 2025—along with safe-haven demand from Middle East and Russia-Ukraine tensions, constitutes the main cap on gold's upside.

ABN Amro believes the soft tone of the jobs data removed the urgency for an October hike, but persistent inflationary pressure from the energy shock could still prompt the Fed to raise rates once in December. Market pricing for a year-end hike remains as high as about 85%.

Gold bulls are currently standing pat, waiting for the ISM services PMI and Fed officials' speeches to provide new directional guidance. Amid the tug-of-war between a strong dollar and fading rate-hike expectations, gold is likely to remain range-bound in the near term, with support below $4,150 per ounce and resistance above becoming the key battleground for bulls and bears.

As of 13:50 Beijing time, spot gold was quoted at $4,138.66 per ounce.