Key Takeaways
- The price of gold has returned to near all-time highs this week after dipping in late July.
- Gold has surged since the release last Friday of U.S. employment data that showed the labor market is considerably weaker than previously estimated.
- Expectations that the Federal Reserve will cut interest rates in September have risen considerably following the July jobs report, helping to underpin demand for the precious metal.
Uncertainty about the direction of the U.S. economy again has catapulted the price of gold to near all-time highs. Increasing expectations that the Federal Reserve will cut interest rates in September may keep it there.
Spot gold reached a high of $3,418.14 per troy ounce Thursday, within striking distance of its June 13 all-time high of $3,448.50. The price of gold has gained more than 3% since hitting a one-month low of $3,311.80 a week ago, just before the release of employment data that showed the U.S. labor market to be far weaker than previously thought.
Seeking Safety
The latest rally falls in line with gold‘s reputation as a safe haven for investors in times of economic uncertainty.
The jobs report last Friday showed that employers hired fewer workers in July than economists had estimated, while the unemployment rate ticked higher to 4.2%. Even more worrisome, employment numbers for the previous two months were revised dramatically lower.
Weakening labor market conditions could portend lower economic growth, something investors have been worried about amid uncertainty about the impact that tariffs will have. Concerns about the economic outlook have helped fuel gold’s 30% price rise year-to-date.
Fed Rate-Cut Expectations Rise
The weak jobs numbers have boosted market expectations that the Fed’s policy committee will cut the benchmark fed funds rate when it meets in September. After trimming the rate a full percentage point in late 2024, the Fed has refrained from cutting rates this year, with officials saying they need more data showing how tariffs affect inflation before adjusting policy. (The Fed has a dual mandate to promote high levels of employment and to maintain price stability.)
While the Fed has stood pat on rates, the European Central Bank has cut interest rates eight times since June 2024. The ECB rate cuts have bolstered the value of gold globally. Because gold does not offer a regular yield payment to investors, it tends to perform better when competing investments, such as bonds, offer lower interest payments.
That’s why Fed rate cuts, were they to occur, could further underpin demand for gold.
Prior to the jobs report on Aug. 1, just 37% of investors expected a September rate cut, based on the fed funds futures market. Now, more than 90% expect a quarter-point cut in the Fed’s benchmark target rate to 4%-4.25%, as well as additional cuts before the end of 2025.
