Gold rallies from a sharp correction, fueled by a surprising jobs report and central bank purchases.
The gold market in 2026 has tested traders' resilience. After plunging 18% from a decade-high of over $5,300 per ounce in early January to around $4,000, the precious metal has staged a dramatic comeback, surging more than 9% in the past two weeks to reclaim the $4,400 level. Last week, gold posted its best weekly performance since January, while mining stocks delivered their strongest five-day rally since 2008. Behind this seemingly powerful rebound, bulls and bears are locked in a fierce battle over the Federal Reserve's policy path, geopolitical risks, and global central bank gold buying.
From rate hike fears to a jobs surprise: The nonfarm payrolls trigger
In the first half of 2026, gold underwent a brutal valuation reset. Amid the Iran-US conflict pushing up oil prices and a persistently hawkish Fed, international gold prices fell sharply from a record high of $5,405 per ounce in late January, with a maximum intra-year drawdown exceeding 30%. By late June, gold had touched a yearly low of $3,970 per ounce. However, in August, the market narrative shifted dramatically. The catalyst for this rebound was a "shockingly weak" employment report released by the U.S. Labor Department on August 7. Data showed that nonfarm payrolls fell by 23,000 in July, against expectations for an increase of 80,000. Moreover, data for May and June were revised downward by a combined 103,000. The subsequent July CPI data further confirmed a moderation in inflation pressures. The U.S. CPI rose 0.1% month-over-month and 3.4% year-over-year, while the core CPI increased 0.2% month-over-month and 2.5% year-over-year, both in line with expectations. This combination of tame inflation and a weak labor market painted a picture of an economic slowdown with contained inflation, completely upending market expectations for Fed policy. The CME FedWatch Tool showed the probability of a 25-basis-point rate hike in September plummeting from about 68% to 40%. Federal funds futures traders priced the probability of an October rate hike at 45%, down from over 70% just weeks ago. "This isn't a rate-cut trade, at least not yet," said Patrick Kennedy, founder of AllSource Investment Management. "The change is that the tail risk of a rate hike has disappeared from the market." The Fed held rates steady between 3.50% and 3.75% all year, and September was indeed seen as a potential hiking window until the jobs data disappointed. Aakash Doshi, Head of Global Gold and Metals Strategy at State Street Global Advisors, noted, "Gold's price action over the past three to four weeks has been primarily driven by Fed expectations and a weaker U.S. dollar." He added that while Fed Chair Kevin Warsh struck a hawkish tone at the July FOMC meeting, he didn't commit to a September hike, which the market interpreted as a lack of urgency to tighten policy. The U.S. dollar index fell to multi-month lows, declining 1.2% over the past two months. Analysts from Soochow Securities, led by Chief Economist Lu Zhe, believe gold has entered a "right-side" trend, forecasting a recovery to $4,700-$5,000 per ounce by the September FOMC meeting. They argue that falling real rates provide quantifiable upside, while USD credit risk could further open up elasticity.
Central bank gold buying: 289 tonnes of 'super demand' builds a structural floor
If easing rate-hike expectations are the "trigger" for gold's rebound, then sustained central bank purchases are the "anchor" for its long-term rise. The World Gold Council's latest report shows that global central banks and other official institutions added a net 289 tonnes of gold reserves in the second quarter of 2026, a 62% increase year-on-year and a 411% jump from the first quarter, marking the highest quarterly buying in nearly four years. Total global gold demand for the first half of 2026 reached 2,522 tonnes, up 2% year-on-year, with the value of demand hitting a record high of $380 billion. Notably, the People's Bank of China has increased its gold reserves for 21 consecutive months, adding 640,000 ounces (about 19.9 tonnes) in July. Central banks in Poland, Uzbekistan, Kazakhstan, and Singapore also joined the buying spree in the second quarter. A World Gold Council survey showed that 45% of central banks surveyed expect to increase their gold reserves over the next year. Pippa Malmgren, a former special assistant to President George W. Bush and member of the National Economic Council, said the factors attracting investors to gold have never changed. Many worry about uncontrolled U.S. fiscal spending and expect weak economic growth elsewhere, which "means inflation." She added that the Trump administration's costly foreign wars and embrace of cryptocurrencies have exacerbated unease among some investors. Malmgren noted that this drives anxious investors toward conservative stores of value like gold, while global central banks are also increasing their holdings, further signaling declining confidence in fiat currencies, a trend amplified by China's continued purchases. In a recent report, Heraeus pointed out that gold currently has two layers of support: short-term, driven by monetary policy expectations (real rates, USD, Fed policy), and long-term, from more sustainable structural demand like central bank de-dollarization, geopolitical risks, and sovereign asset diversification. "The former determines the speed of price increases, while the latter dictates whether gold can regain its offensive capability after a major correction."
Gold mining stocks: Strongest week since 2008, unleashing a leverage effect
Gold's rebound has been magnified in mining stocks. In the first week of August, the VanEck Gold Miners ETF (GDX) surged 21.09% over five trading days, its best weekly performance since December 2008. The GDXJ, focusing on small and mid-cap miners, gained even more at 22.42%. Major producers also performed strongly: Agnico Eagle Mines rose 22.92%, Newmont gained 20.55%, and Barrick Gold advanced 19.22%. The larger gains from smaller miners reflect the stronger profit leverage that higher gold prices provide to higher-cost, smaller-scale producers. When gold prices rise, costs like labor, energy, and mining don't increase proportionally, so each dollar increase in gold can have a greater impact on their profits and valuations. Independent trader Vince Stanzione noted that some traders and investors have shifted to gold mining stocks in search of value in the equity market. Many large-cap gold miners, like Newmont, currently trade at forward P/E ratios in the single digits and offer generous dividends. With gold prices rising and mining costs (like energy) remaining relatively stable, the margin expansion of mining companies far outpaces the gold price itself. However, analysts warn that mining stocks should be seen as "auxiliary amplifiers" within a portfolio, not the core holding. Billionaire hedge fund manager and "short-seller" John Paulson said in an interview that he believes gold is in the early stages of a long-term bull market, with demand for gold as an alternative continuing to grow as confidence in fiat currencies wanes. Paulson specifically noted that the best investment approach now is to invest in early-stage gold miners, i.e., companies with large undeveloped reserves.
Capital flows: GLD sees over $2 billion in inflows in two weeks, surging call option buying
The shift in capital flows confirms the fundamental change in market sentiment. The SPDR Gold Shares (GLD) ETF, the largest physically backed gold ETF in the U.S., recorded $284 million in net inflows in July, its first monthly net inflow since March. In August, inflows accelerated, attracting over $2 billion in net inflows in the first two weeks alone. On August 11 alone, GLD saw $637 million in total inflows, the largest single-day inflow since June 18, with retail investor inflows of $50 million, the strongest single-day retail buying since March. GLD's cumulative inflows for August have surpassed $1.4 billion, putting it on track for its first monthly net inflow since February. For retail investors, there are multiple ways to express a bullish view on gold, according to Shawn Young, Chief Analyst at crypto exchange MEXC Research. Young said that precious metals ETFs like GLD and iShares Gold Trust (IAU) are the most direct ways to express a gold view. The options market is even more aggressive. SpotGamma data showed that on Friday, GLD call option buying approached $100 million, while put option buying was only about $25 million. GDX call option buying exceeded $80 million, with put option buying just over $9 million. GDX trading volume was about four times its usual volume. Suki Cooper, Global Head of Commodities Research at Standard Chartered Bank, said that central bank demand, geopolitical uncertainty, and asset allocation diversification remain strong, and gold prices could move back towards the $5,000 per ounce level. The UBS Wealth Management Chief Investment Office also expects gold prices to rise to $5,000 by the first half of next year, driven by a downward trend in U.S. yields, a further weakening U.S. dollar, and continued central bank buying. Joe Cavatoni, Senior Market Strategist at the World Gold Council, noted that unlike past gold rushes driven purely by war panic, the current rebound in U.S.-based gold buying is more about macro-strategic considerations. Cavatoni said, "I don't think gold is just a safe haven. Many investors use it as a store of wealth and to help diversify portfolios amid uncertainty over economic growth and policy."
Future risks: A triple test from real rates, Jackson Hole, and geopolitics
However, gold's path higher is not without obstacles. Despite cooling rate hike expectations, real interest rates remain elevated. The 10-year U.S. Treasury yield was still hovering near 4.7% at the start of the week, close to 19-month highs. High real rates have been the biggest headwind for gold this year. The upcoming Jackson Hole global central bank symposium in late August will be the next key event. Markets expect Fed Chair Warsh may outline the medium-term policy framework there. Soochow Securities analysts point out that around the August-September FOMC meetings, gold prices could see a relatively smooth rally, with new catalysts likely coming from the upcoming nonfarm payrolls, CPI data, and the global central bank meeting. The market is not only trading on rate expectations but also adapting to the policy style of new Fed Chair Kevin Warsh. Eugenia Mykuliak, Executive Director of B2Prime Group, stated that Warsh's cautious and often ambiguous rhetoric has increased market anxiety about central bank policy. On the geopolitical front, progress in US-Iran negotiations remains uncertain. If the Strait of Hormuz reopens and oil prices fall further, easing inflation pressures could further weaken the Fed's motivation to hike rates. Conversely, renewed geopolitical tensions could push gold prices higher. A stark warning from Gary Marcus, Professor Emeritus at New York University, might be the most cautionary: "Massive amounts of money are being poured into AI projects, but uncontrolled AI has already emerged, and there are currently no effective control methods." When the market is simultaneously uncertain about central bank policy, geopolitics, and new technology risks, the logic of capital flowing from risk assets to gold as a safe haven will continuously self-reinforce.
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