Spot gold was up 0.9% at $4,413.93 per ounce. U.S. gold futures for December delivery edged 0.8% higher to settle at $4,473.70.
The gold market appears to be pricing in a stagflationary environment, with softer employment and expectations that the Fed will tolerate current inflation levels, said Bart Melek, global head of commodity strategy at TD Securities.
“A big factor here is the US dollar has weakened to a psychologically important 100 level.”
The dollar fell to its lowest level in more than two months, making gold cheaper for buyers holding other currencies.
Markets pared bets on a Federal Reserve rate hike after last week’s weaker-than-expected U.S. payrolls report and subdued consumer inflation data.
Investors are now awaiting minutes from the Fed’s July meeting, due on Wednesday, for clues on the central bank’s policy outlook.
Traders see a 33% probability of a September rate increase, down from 51.2% a month earlier, CME’s FedWatch Tool showed.
Gold, which pays no interest, tends to benefit from lower interest rates as they reduce the opportunity cost of holding bullion.
On the geopolitical front, a senior Iranian official told Reuters that Tehran would step up tensions in the Strait of Hormuz and across the region if diplomatic efforts with the United States break down, signaling a more offensive approach.