This week, gold has benefited from two opposing macroeconomic forces in a rare, dual manner. Volatility in oil prices, driven by tensions around Iran, has continuously stirred inflation expectations, boosting demand for gold as a store of value. Simultaneously, a shockingly weak jobs report has severely dented expectations for Federal Reserve interest rate hikes, further pressuring the US dollar and bond yields, opening an upward path for gold prices. The confluence of these forces has propelled gold to its best weekly performance in seven months.
On Friday, data from the US Bureau of Labor Statistics showed that US non-farm payrolls unexpectedly fell by 23,000 in July, far below the market expectation of an 83,000 increase. The previous months' data were also revised sharply lower. Following the release, market expectations for a Fed rate hike in September plummeted from around 55% to approximately 40%. Bond yields tumbled, the dollar weakened, and gold surged to a two-month high.
Meanwhile, geopolitical tensions surrounding the Strait of Hormuz caused crude oil prices to fluctuate wildly this week, with Brent crude briefly returning above $83 per barrel. Every $10 move in oil prices directly transmits to market inflation expectations, thereby influencing the Fed's policy path, bond yields, and asset valuations. This logic allows gold to act as a safe-haven asset during rising inflation and benefit from easing expectations when employment weakens, creating a "win-win" scenario.
Notably, ETF buying has also picked up. Since July 20, total holdings in gold ETFs have increased by approximately 24 tonnes, indicating that institutional funds are re-incorporating gold into their portfolios.
Weak Jobs Data Crushes Rate Hike Expectations, Gold Gains Support from Easing Logic
The biggest macro shock of the week came from Friday's non-farm payrolls report. The unexpected 23,000-job decline in July, starkly contrasting with the expected 83,000 increase, and the downward revisions to previous data, caught the market off guard.
The market reaction was swift and severe. Bond yields dropped sharply, the dollar weakened, equities rose, and traders quickly unwound bets on a September rate hike. Before the report, the market-assigned probability for a September rate increase was around 55%; after the release, this figure rapidly declined towards 40%.
Furthermore, expectations for rate hikes in 2026 have also narrowed to just one.
The core question for the market has subsequently shifted — it is no longer about whether Fed Chair Kevin Warsh will tighten policy again next month, but whether the current labour market can withstand further rate increases.
For gold, this logic chain is direct and clear: a decline in rate hike expectations leads to lower real yields on bonds, which in turn reduces the opportunity cost of holding gold, pushing its price higher.
On Wednesday this week, gold posted a single-day gain of over 4%, its largest since February, showing a significant divergence from rising real yields, suggesting buying power has surpassed the traditional pricing framework.
Oil Price Volatility, Inflation Narrative Provides Another Layer of Support for Gold
If the jobs data provided gold with "easing logic," then the turmoil in the oil market has injected "inflation logic."
This week, crude oil prices swung wildly with every news report concerning the Strait of Hormuz. On Monday, renewed hopes for US-Iran diplomatic engagement caused oil prices to fall sharply. Subsequently, reports that Iranian officials were discussing legislation to restrict the passage of US, Israeli, and other "hostile" nation ships through the Strait of Hormuz, compounded by Houthi militant activity and reports of potential attacks on Saudi Arabia, triggered a rapid rebound in oil prices. Brent crude briefly returned above $83 per barrel, while WTI hovered around $78.
The impact of oil price movements on the macro market extends far beyond the energy sector itself. Market consensus holds that every $10 change in crude oil prices is directly transmitted to inflation expectations, subsequently influencing the Fed's policy path, bond yields, and equity valuation multiples. This means the Strait of Hormuz effectively functions as one of the world's largest macro-option trades.
In this context, gold's inflation-hedging properties have been fully activated. When oil price increases trigger inflation concerns, the demand for gold as a real asset store of value rises. When oil prices fall due to diplomatic progress, inflation pressures ease temporarily, but gold has already accumulated sufficient buying momentum from the preceding rally.
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