Gold off 3-week lows as investors brace for US inflation test

By Swati Verma

(Reuters) -Gold prices were off three-week lows on Monday after slowing U.S. job growth knocked the dollar and bond yields from their recent highs, while investors braced for this week’s inflation test that could influence the Federal Reserve’s policy path.

Spot gold was steady at $1,940.99 per ounce by 0325 GMT, having slid to its lowest since July 11 on Friday before settling 0.4% higher. U.S. gold futures were flat at $1,976.10.

The U.S. dollar index fell and benchmark 10-year Treasury yields slid from November highs after the Labor Department’s employment report on Friday showed the economy added fewer jobs than expected in July. [USD/] [US/]

The new evidence that the labor market is cooling, added to the case that the U.S. central bank’s recent interest rate hike could be the last of its current tightening cycle.

Markets also took stock of the labor department data showing solid wage gains and a decline in the unemployment rate that suggests continued tightness in labor market conditions.

The job report has been largely mixed, said Yeap Jun Rong, a market strategist at IG, adding that the cooling job gains provide an argument for the Fed to keep rates on hold, but more persistent wage pressures from labor market tightness suggest that one should still keep an eye on inflation risks ahead.

Data on U.S. consumer prices to be released on Wednesday will be in focus to assess whether more rate hikes are needed to tame inflation.

Non-yielding gold is often sought as a safe investment against inflation but tends to lose its sheen when rates rise.

“While a softer U.S. dollar and lower bond yields in its (jobs data) aftermath have provided some relief for gold… it may have to take a more significant weakening in the U.S. dollar to bring traction for the yellow metal,” Jun Rong said.

Spot silver was down 0.3% to $23.54 an ounce, while platinum added 0.4% at $926.05. Palladium gained 0.5% to $1,263.26.

(Reporting by Swati Verma in Bengaluru; Editing by Rashmi Aich and Subhranshu Sahu)