Gold prices held steady near $2,520 per ounce on Friday, hovering close to one-week highs as traders awaited the much-anticipated US jobs report. This report could significantly impact expectations for a substantial interest rate cut by the Federal Reserve, a move that would likely boost gold prices further. The relationship between interest rates and gold is crucial because lower rates reduce the opportunity cost of holding non-yielding assets like gold. As such, investors are closely watching the US economic data to gauge the likelihood of an aggressive Federal Reserve rate cut.

Recent data from the ADP report revealed that US private employers hired the fewest number of workers in 3.5 years during August, indicating potential weakness in the labor market. This, along with a sharp decline in US job openings in July and continued subdued activity in the manufacturing sector, has raised concerns about the overall health of the US economy. With economic indicators signaling a slowdown, markets are increasingly betting on a 50 basis point rate cut by the Federal Reserve this month.

Gold's performance is often tied to the state of the economy, and as concerns grow over the potential for an economic downturn, gold is seen as a safe-haven investment. Over the past few weeks, the market has priced in a 41% chance of a 50 basis point rate cut, with further bets on a total of 125 basis points in cuts by the end of the year. This heightened anticipation is one of the key factors keeping gold prices elevated as investors prepare for more accommodative monetary policy from the Fed.

However, not all data suggests a gloomy economic outlook. The unexpected rise in the ISM Services PMI, driven by an increase in new orders and prices, has alleviated some of the concerns regarding the strength of the US economy. The ISM Services PMI measures the overall economic health of the services sector, which accounts for a large portion of the US economy. This positive data surprised the markets and momentarily reduced the chances of a more significant rate cut, but overall expectations for a dovish Federal Reserve remain intact.

As a result, gold prices have remained stable, with the potential for further gains depending on the outcome of the US jobs report. Over the course of the week, gold is set to advance, with many investors continuing to seek refuge in gold amid economic uncertainty and market volatility.

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