In the UAE, 24-carat gold stood at Dh220.50 per gram. Image Credit: Reuters

Gold prices extended a rally to hit a two-month high on Monday as investors held onto the view that central banks would keep interest rates low for the time being, with focus turning to key US inflation data due later in the week.

Spot gold rose 0.2 per cent to $1,819.52 per ounce by 0623 GMT (10.23am UAE time), having hit its highest since September 7 earlier in the session. US gold futures gained 0.3 per cent to $1,822.10.

In the UAE, 24-carat gold stood at Dh220.50 per gram, while 22-carat gold was at Dh207 per gram at 12.34pm.

Major central banks last week stuck to the view that current inflationary pressures would fade, dimming the prospect for faster rate hikes. Analysts said a better-than-expected US payrolls report on Friday was also unlikely to change the Fed’s dovish stance, with market participants now focusing on Wednesday’s key Consumer Price Index reading.

Inflation data will have to be markedly above expectation for any sort of jolt back into the fear of higher interest rates, but as long as it comes out in line with or slightly above expectations, I don’t think anybody will panic.

- IG Markets analyst Kyle Rodda

Rodda said a break above $1,830 could drive a rally towards $1,900 in gold, though it would likely trend lower in the long term as central banks eventually tighten policies to control high inflation.

Gold benefits from lower interest rates as they reduce the opportunity cost of holding non-yielding bullion.

Spot silver rose 0.4 per cent to $24.27 per ounce. Platinum gained 0.7 per cent to $1,041.66 and palladium climbed 0.8 per cent to $2,050.78.