Gold surges to record highs on weak US jobs data; what should investors do?

Gold prices have soared to unprecedented levels following weaker-than-expected employment data from the United States, intensifying speculation that the Federal Reserve may cut interest rates soon. Spot gold rose nearly 1% to $3,580.06 an ounce in London, marking a weekly gain of 3.8%, the largest since mid-June. Meanwhile, the Bloomberg Dollar Spot Index fell 0.6%, and Treasury yields saw a modest uptick, highlighting market reactions to the softening labour market.

The recent US jobs report revealed a sharp slowdown in hiring, with nonfarm payrolls increasing by just 22,000 in August—a steep decline from the revised 79,000 in July. Economists had expected an increase of 75,000 jobs. The unemployment rate rose to 4.3%, the highest since 2021, signaling a softening labour market and strengthening expectations for imminent Fed rate cuts. Analysts attribute the slowdown to President Trump’s trade tariffs, immigration restrictions, and policy uncertainties, which have reduced the available labour pool.

“This is a low-churn labour market, meaning there’s not a lot of hiring or firing. Most job growth comes from net new business creation,” said Ernie Tedeschi, economist at Yale University’s Budget Lab. The data is historically prone to revisions, and total employment levels may be adjusted downward by up to 800,000.

Gold’s rally is being supported not only by economic signals but also by heightened geopolitical risks and uncertainty surrounding the Federal Reserve. President Trump’s criticisms of the Fed and attempts to influence its leadership have raised concerns about central bank independence. Investors are watching closely, particularly a potential ruling regarding the removal of Fed Governor Lisa Cook, which could pave the way for a more dovish monetary policy. Goldman Sachs analysts have suggested that a perceived compromise of the Fed’s independence could push gold prices toward $5,000 an ounce as investors move assets from Treasuries to bullion.

Historically, gold has been a preferred safe haven during periods of economic and political instability. The current environment, including trade tensions, tariffs, and questions over the Fed’s future actions, has reinforced demand for the precious metal. Silver has similarly experienced strong gains, benefiting from the same market dynamics that favor secure, non-yielding assets.

Fed Chair Jerome Powell recently indicated that the central bank is likely to consider interest rate cuts at its September 16-17 meeting, acknowledging labour market risks, even as inflation concerns persist. Lower rates typically enhance gold’s appeal by reducing the opportunity cost of holding non-yielding assets.

Gold prices in India

Gold prices jumped by Rs 900 to Rs 1,06,970 per 10 grams in the national capital on Friday, inching closer to record highs on fresh buying by stockists and supportive global trends. According to the All India Sarafa Association, 99.5% purity gold also rose by Rs 900 to Rs 1,06,100 per 10 grams (inclusive of all taxes) from Thursday’s close of Rs 1,05,200.

“Gold rose on the last trading day of the week, fuelled by expectations of lower US interest rates and safe-haven demand. Following Thursday's disappointing employment report, markets fully priced in a September rate cut,” Saumil Gandhi, Senior Analyst – Commodities at HDFC Securities told news agency PTI. He added that pessimism regarding the Russia-Ukraine peace deal, due to lack of progress, has further heightened demand for the safe-haven asset.

The rupee declined 15 paise to a record low of Rs 88.27 against the US dollar amid sustained foreign fund outflows and concerns over additional US tariffs on India. “The US nonfarm payroll report to be released later today is crucial as it will shed light on the job market and influence the Fed’s policy,”Praveen Singh Head of Commodities and Currencies Mirae Asset ShareKhan, said.