Gold ticks higher on softer Fed outlook as strong dollar limits gains

By Pablo Sinha

Oct 5 (Reuters) - Gold prices ticked up on Monday, as investors lowered their expectations that the US Federal Reserve will hike rates this month, although a stronger dollar and rising Treasury yields limited the gains.

Spot gold rose 0.2% to $4,152.19 per ounce by 09:26 a.m. EDT (1326 GMT). US gold futures for December delivery added 0.4% to $4,180.30.

"In recent days, the economic data that we've seen from the US have largely disappointed expectations, and that has caused the interest rate hike bets to be pared," said Fawad Razaqzada, a market analyst at Forex.com.

Expectations the Fed will tighten its policy this month eased after US job growth slowed more than expected in September, and the nonfarm payrolls figures for the prior two months were revised lower, data showed on Friday.

Traders are factoring in a 22% probability of a Fed rate hike in October, compared to about 70% last week. However, they still price in an 84% chance of an increase in December, according to the CME FedWatch Tool.

Higher interest rates can be a deterrent to investing in non-yield-bearing gold, although gold can also be used as a hedge against inflation.

"I think there is a risk we could see a near-term drop in gold before the buyers step in a meaningful way, and it's all to do with the fact that the dollar has been climbing higher," Razaqzada added.

The US dollar index .DXY rose, making dollar-denominated metals more expensive for holders of other currencies, while 10-year US Treasury yields were elevated near two-decade highs. USD/ US/

Investors await minutes of the September Federal Open Market Committee meeting, due later this week, which could help determine the central bank's future monetary policy after it raised interest rates last month for the first time in three years.

Precious metals consultancy Metals Focus expects gold to reach all-time highs in 2027 as investors seek alternatives to traditional dollar-denominated assets, and predict the metal will average $5,330 per ounce next year.

Among other metals, silver rose 1.9% to $61.53 per ounce, platinum gained 1.6% to $1,724.65 and palladium added 1.2% to $1,181.75.