Gold gained $18 to $2,385 an ounce in early Monday trading, its strongest start to the week in over a month. The dollar index fell 0.3 percent to 104.7, extending declines for a third consecutive session.
Traders are positioning ahead of Wednesday's Consumer Price Index release at 8:30 a.m. Eastern Time. Expectations for a softer inflation report are driving the dollar lower, as a reading below August's 3.8 percent year-over-year could reduce Fed hawkishness and cut duration risk for bondholders.
The two-year Treasury yield dropped five basis points to 4.84 percent, signaling compressed short-term rate expectations and a flattening bias across the curve. Futures markets now price a 65 percent probability of a rate hold at the next Federal Open Market Committee meeting, up from 58 percent last week.
Gold typically benefits from a weaker dollar and lower bond yields, which decrease the opportunity cost of holding non-yielding assets. For institutional portfolios, the shift in rate expectations has made gold more attractive relative to traditional fixed-income alternatives.
Equity markets showed caution even as bond markets priced in potential stability. The S&P 500 fell 0.4 percent to $7,719, and the Nasdaq dropped 0.3 percent to $26,507, suggesting equity investors remain cautious despite bond market signals.
