At the start of a new week on Monday, gold prices remained around $2,650.

The US dollar pulled back from a 7-week high amid softening US Treasury yields and a positive risk tone.

The gold price outlook remains constructive as long as the key $2,630 support holds.

Gold prices started the week in the red but remained within the familiar range of around $2,650. With ongoing escalation in Middle East geopolitics, gold prices now turn their attention to speeches by Federal Reserve (Fed) policymakers on Monday, ahead of the release of key US Consumer Price Index (CPI) data later this week.

Gold prices took a hit under the influence of the US non-farm employment report

Gold prices failed to benefit from the US dollar (USD) pulling back from a 7-week high against major competitors. Risk flows remained popular as traders returned after a week-long holiday break, with expectations of more stimulus measures from China. The risk appetite extending to Asia put pressure on safe-haven assets such as gold prices, the US dollar, and US government bonds.

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Softening US Treasury yields also added to the US dollar's pressure, failing to motivate gold buyers, as the People's Bank of China (PBOC), the world's largest gold consumer, reported on Monday that it did not purchase gold reserves for the fifth consecutive month in September. China is the world's largest gold consumer.

The main catalyst behind the softening of gold prices this month has been the gradual fading of expectations for a 50 basis point (bps) rate cut by the Fed next month. The less dovish shift in sentiment around the Fed was more pronounced after Friday's blockbuster non-farm employment data, which completely ruled out the possibility of a substantial rate cut by the Fed in November.

Data released by the US Bureau of Labor Statistics (BLS) on Friday showed that non-farm employment increased by 254,000 in September (originally 142,000) after increasing by 159,000 in August (originally 142,000). The reading was much higher than the market's expectation of 140,000. The annual wage inflation rate, measured by average hourly wage changes, rose slightly to 4% in September from 3.9% in August.The FedWatch tool from the Chicago Mercantile Exchange (CME) indicates that the market is currently pricing in a roughly 94% probability that the Federal Reserve will opt to lower interest rates by 25 basis points at their next meeting, with a 6% chance of deciding to leave rates unchanged.

However, due to the ongoing geopolitical risks triggered by the escalating conflict between Israel and Iran, gold prices have managed to limit their corrective downside. On Sunday evening, the Israel Defense Forces (IDF) stated that they had targeted multiple Hezbollah sites in Beirut, including the intelligence headquarters of Hezbollah. In retaliation, Hezbollah claimed to have fired a barrage of rockets into northern Israel on Sunday night.

Growing concerns about the Israel-Iran conflict evolving into a broader Middle Eastern war continue to be a cause of worry for global markets. Consequently, gold traders are awaiting the upcoming Federal Reserve speeches to further propel this week's key event risks—the U.S. September consumer inflation data.