Gold prices dropped as stronger U.S. economic data tempered expectations of a significant interest rate cut by the Federal Reserve in November. The market is now pricing in a 34% chance of a 50-basis-point cut, down from 49% last week, according to CME’s FedWatch tool. Richmond Federal Reserve President Thomas Barkin noted that inflation might remain above the 2% target for longer, limiting aggressive rate cuts.

Despite the decline, gold remains near its record high of $2,685.64, supported by geopolitical tension in the Middle East. U.S.-Israel tensions intensified after Iran’s missile attack on Israel, adding safe-haven demand for gold. However, the possibility of a less aggressive rate cut continues to limit upside momentum.

Investors are awaiting the U.S. non-farm payrolls report, scheduled for Friday. A weaker-than-expected jobs print could drive gold prices higher, with potential to test the $2,700 mark.

Treasury Yields Rise as Focus Shifts to Labor Market Data

U.S. Treasury yields rose on Thursday as investors shifted focus to labor market data, with the yield on the 10-year Treasury increasing by more than 2 basis points to 3.813%. The 2-year Treasury yield also rose to 3.674%. Private payrolls data from ADP revealed stronger-than-expected growth, with private employers adding 143,000 jobs in September, surpassing expectations of 128,000.

The labor market strength puts more pressure on the Federal Reserve’s interest rate decisions. Friday’s non-farm payrolls report will play a key role in shaping expectations for further monetary policy moves, particularly the potential for rate cuts.

Currencies: Safe-Haven Dollar Gains as Sterling and Yen Weaken

The U.S. dollar strengthened across the board as geopolitical tensions and stronger economic data supported demand. Safe-haven buying increased following Iran’s missile attack on Israel, while better-than-expected U.S. private payrolls data pushed expectations for a robust non-farm payrolls report on Friday.