(Bloomberg) — Gold headed for the biggest monthly advance since July, with inflation risks in focus ahead of key U.S. jobs data due later this week that will offer clues on the economic recovery.

Some Federal Reserve officials have said that recent price pressures are to be expected as the economy reopens amid pent-up demand, and should prove temporary as supply glitches abate. The PCE price index — which the Fed uses for its inflation target — rose 3.6% from a year earlier, the biggest jump since 2008.

Bullion erased its 2021 losses this month amid signs of accelerating inflation and a potentially uneven economic recovery due to the resurgence of Covid-19 in some countries. Investor interest has also returned, with hedge funds and other large speculators boosting their net-long position in gold to the highest since early January. Holdings in bullion-backed exchange-traded funds climbed for the first time in four months in May but the gains remained far short of those seen during last year’s record rally.

“Gold is heading for its biggest monthly gain since July as inflation remains the key focus,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said in a note. “The recovery in ETF holdings backed by bullion and fund positions in futures remain subdued, a sign that many investors remain unconvinced about the short to medium-term direction.”

Spot gold rose 0.1% to $1,906.29 an ounce by 10 a.m. in London, bringing this month’s gain to 7.7%. Prices climbed to $1,912.76 last week, the highest since Jan. 8. Silver, palladium and platinum also advanced. The Bloomberg Dollar Spot Index headed for a second straight monthly drop.

The U.S. nonfarm payrolls report scheduled for release on Friday augurs a pivotal moment for investors to assess whether surprisingly tepid job gains seen last month were a momentary blip or the start of something more persistent.

“With gold breaking above the $1,900 level, there is a clear bullish momentum with precious metal demand right now,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “A weak nonfarm payrolls number this Friday may jolt gold prices toward the $1,975 level.”

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