Gold's Resilience Amid U.S. Jobs Slowdown and Dollar Weakness

The U.S. labor market’s recent slowdown has reignited expectations of Federal Reserve rate cuts, fueling a surge in gold prices to record highs. The August 2025 nonfarm payroll report revealed a mere 22,000 jobs added—far below the projected 75,000—while the unemployment rate rose to 4.3% [1]. This weak data, coupled with a decline in job vacancies and sector-specific contractions in manufacturing and wholesale trade, has solidified market pricing for a 25-basis-point rate cut at the Fed’s September 17 meeting, with a near 100% probability implied by futures [4]. Gold, a non-yielding asset, has thrived in this environment, hitting $3,582.71 per ounce as investors sought refuge from currency depreciation and inflation risks [1].

The Fed’s dovish pivot is part of a broader macroeconomic reallocation of capital toward safe-haven assets. Real interest rates, calculated as nominal rates minus inflation, have fallen to nearly 1% in August 2025, historically supporting gold’s appeal [1]. Lower rates reduce the opportunity cost of holding gold, which does not generate income but preserves purchasing power. This dynamic is amplified by the U.S. dollar’s weakening, which has fallen from above 108 in early 2025 to below 98 by September, making gold more affordable for international buyers [1]. The dollar’s fragility is further eroded by geopolitical uncertainties, including judicial challenges to President Trump’s tariffs and concerns over Fed independence, which have diminished its safe-haven premium [3].

Central bank demand has also played a pivotal role in gold’s resilience. Emerging economies, led by China and Turkey, have accelerated gold purchases to diversify reserves away from the dollar. In 2025, central banks are projected to add around 900 tonnes of gold, with Poland alone accounting for 67 tonnes year-to-date [5]. This structural shift reflects a strategic hedge against dollar volatility and a redefinition of global monetary systems. As noted by Gold.org, central bank gold holdings now exceed U.S. Treasury holdings for the first time since 1996, signaling a long-term reallocation of wealth [4].

Investment flows into gold ETFs have surged, with global inflows exceeding $41 billion in 2025, including $3 billion in a single week [1]. This demand is driven by both retail and institutional investors, who are increasingly viewing gold as a counterbalance to equities and bonds. Hedge funds have amplified this trend, with net-long gold positions reaching 170,868 contracts in July 2025—the highest in 16 weeks [3]. The shift is partly a response to the breakdown of traditional diversification frameworks, as the 60/40 portfolio model faces challenges from rising inflation and divergent stock-bond correlations [5].

Looking ahead, gold’s trajectory hinges on the Fed’s policy path and global economic stability. Goldman Sachs projects gold prices could surpass $4,000 by mid-2026 if central bank demand persists and rate cuts continue [2]. However, risks remain, including a potential slowdown in ETF inflows due to record-high prices and geopolitical de-escalation. For now, the confluence of weak labor data, dollar weakness, and central bank accumulation ensures gold’s role as a cornerstone of capital preservation in an uncertain world.

Source:
[1] Gold hits fresh record high after soft US jobs data, [https://www.reuters.com/world/india/gold-hits-fresh-record-high-after-soft-us-jobs-data-2025-09-05/]
[2] Goldman Sachs sees gold prices surpassing $4,000 if investors ramp up buying, [https://www.reuters.com/business/goldman-sachs-sees-gold-prices-surpassing-4000-if-investors-ramp-up-buying-2025-09-04/]
[3] Fed Fragility Drives Diverging Dollar-Gold Paths, [https://www.puprime.com/fed-fragility-drives-diverging-dollar-gold-paths/]
[4] Central Bank Gold Holdings Now Exceed Treasury Reserves, [https://discoveryalert.com.au/news/central-banks-gold-accumulation-2025/]
[5] The New Gold Story: Who's Buying, and Why, [https://www.wisdomtree.com/investments/blog/2025/04/24/the-new-gold-story-whos-buying-and-why]