Gold prices swung sharply last week as traders moved between rising bond yields, changing Federal Reserve expectations and renewed tensions in the Middle East.

Spot gold dropped to a two-week low of $4,328.60 per ounce on Tuesday as U.S. Treasury yields rose and the dollar strengthened. It then rebounded 2.3% to $4,488.54 on Thursday after Federal Reserve Governor Christopher Waller supported keeping interest rates unchanged if inflation continued to ease.

That recovery lost momentum on Friday when the latest U.S. employment report came in much stronger than expected.

Strong Hiring Pressured Gold

U.S. Non-Farm Payrolls, or NFP, increased by 162,000 in August. NFP measures job creation across most areas of the American economy.

The result was nearly three times the 56,000 increase expected by economists surveyed by Reuters. The unemployment rate remained at 4.1%, while June and July payroll figures were revised higher by a combined 55,000 jobs.

The dollar and Treasury yields rose after the release, while gold pulled back.

Stronger employment can give the Federal Reserve more room to raise interest rates when inflation remains high. Market expectations of a September rate increase climbed after the report.

Higher rates can place pressure on gold because the metal does not pay interest. Rising Treasury yields may make interest-paying U.S. assets more attractive. A stronger dollar can also make gold more expensive for buyers using other currencies.

However, the jobs report did not provide a completely clear inflation signal. Annual wage growth slowed to 3.1%, leaving traders focused on this week’s U.S. inflation data.

Oil and Iran Complicated the Market

Renewed tension between the United States and Iran added another layer of uncertainty.

Oil prices climbed as attacks involving vessels near the Strait of Hormuz raised concerns about further supply disruptions. The waterway carries around one-fifth of global oil shipments.

Higher energy prices may increase transport, production and consumer costs. This could keep inflation elevated and encourage central banks to maintain higher interest rates.

For gold, the effect is mixed.

Geopolitical uncertainty may support safe-haven demand, which is the demand for assets viewed as relatively protective during periods of market fear. However, oil-driven inflation may also raise interest-rate expectations and Treasury yields, reducing gold’s appeal.

This tension helped create the sharp price swings seen throughout the week.

Eurozone Inflation Raised Pressure on the ECB

Eurozone annual inflation increased from 2.9% in July to 3.3% in August, driven partly by higher energy costs.

The result strengthened expectations that the European Central Bank could raise its deposit rate by 0.25 percentage point to 2.50% on Thursday.

For EUR/USD traders, attention may extend beyond the decision itself. ECB President Christine Lagarde’s comments and the bank’s updated economic projections could indicate whether further increases remain possible.

A stronger policy message may support the euro. A more cautious outlook could shift attention back toward the dollar and U.S. interest-rate expectations.

Yen Strengthened on Possible BOJ Action

The Japanese yen strengthened last week as markets considered another Bank of Japan rate increase and possible action to prevent excessive currency weakness.

Japan’s government repeated that it remained alert to sharp movements in the yen. Expectations of higher Japanese rates may reduce part of the large interest-rate gap between Japan and the United States.

USD/JPY could remain sensitive to Japan’s final second-quarter GDP figures, Bank of Japan comments and changes in U.S. Treasury yields.

U.S. Inflation Is the Next Test

The United States releases its Producer Price Index on Thursday. PPI tracks wholesale inflation and measures changes in prices received by producers.

The Consumer Price Index follows on Friday. CPI measures changes in prices paid by consumers and is one of the main reports used to assess inflation.

A stronger inflation result could reinforce expectations of a Fed rate increase, potentially supporting the dollar and bond yields while pressuring gold. A softer reading could reduce some of those expectations.

China will also publish trade and inflation data, while the United Kingdom reports monthly GDP. These releases may affect the Australian dollar, yuan and pound.

For gold traders, the central question remains whether safe-haven demand can offset the pressure created by higher interest rates and a stronger dollar.

XAU/USD may remain volatile as markets balance U.S. inflation, Fed policy and developments in the Strait of Hormuz.