PRECIOUS-Gold extends record rally as Fed rate outlook dents US dollar, yields

By Brijesh Patel

Sept 9 (Reuters) - Gold prices scaled a record peak on Tuesday, buoyed by a weaker U.S. dollar and a dip in bond yields, as growing expectations of a Federal Reserve rate cut this month lifted demand for the precious metal.

Spot gold XAU= was up 0.2% at $3,642.09 per ounce, as of 0636 GMT, after hitting a record high of $3,659.10 earlier in the session. U.S. gold futures GCcv1 for December delivery edged 0.1% higher to $3,682.10.

"We probably will see more upside in gold from here provided that the U.S. central bank delivers with regards to market expectations of seeing multiple rate cuts," KCM Trade Chief Market Analyst Tim Waterer said.

U.S. job growth weakened sharply in August and the unemployment rate increased to a nearly four-year high of 4.3%, confirming that labour market conditions were softening and sealing the case for a Fed rate cut next week.

Traders are pricing in an 89.4% chance of a 25-basis-point Fed rate cut at this month's meeting and a 10.6% probability of a jumbo 50-basis-point cut, per the CME Group's FedWatch tool.

Lower interest rates pressure the dollar and bond yields, raising the appeal of the non-yielding bullion.

The dollar index .DXY fell to an almost seven-week low against its rivals, making gold more attractive for other currency holders, while the benchmark U.S. 10-year Treasury yield US10YT=RR dropped to a five-month low. USD/ US/

Meanwhile, the European Central Bank is widely expected to hold rates at its meeting on Thursday.

Investors are now awaiting the U.S. producer price data on Wednesday and consumer price data on Thursday for further clues into the Fed's policy path.

"A potential short-term catalyst would be if U.S. inflation data comes in below expectations this week, which could see the Fed dial up their dovish levels at their September meeting and could hasten gold's ambitions of hitting the $3,700 level," Waterer said.

Gold prices have gained 38% so far this year, following a 27% jump in 2024, bolstered by a soft dollar, strong central bank accumulation, dovish monetary settings and heightened global uncertainty.

Elsewhere, spot silver XAG= was flat at $41.32 per ounce. Platinum XPT= gained 0.6% to $1,390.80 and palladium XPD= climbed 1.1% to $1,147.07.

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