Gold prices climbed to a seven-week high on Friday after a surprisingly weak U.S. jobs report reduced expectations that the Federal Reserve will raise interest rates in the coming months.
The move puts bullion on track for its strongest weekly performance in around seven months.
By 10:03 ET (14:03 GMT), spot gold had risen 2.4% to $4,340.06 an ounce. Gold futures were also up 2.3% at $4,395.72 an ounce.
U.S. Jobs Report Misses Expectations
The U.S. economy lost 23,000 jobs in July, sharply missing economists’ expectations for an increase of 85,000.
Previous employment figures were also revised substantially lower.
June job growth was cut to 20,000 from an earlier estimate of 57,000. Meanwhile, May’s gain was revised down to 63,000 from 129,000.
Together, the revisions showed 103,000 fewer jobs were created in May and June than previously reported.
The weaker figures added to concerns that momentum in the U.S. labor market may be slowing.
Unemployment Rate Edges Lower
Despite the decline in payrolls, the unemployment rate eased slightly to 4.1%.
Economists had expected it to remain at June’s level of 4.2%.
However, the labor force participation rate slipped to 61.4%. This measure tracks the share of working-age people who are either employed or actively searching for work.
The participation rate remains close to its lowest level in roughly 50 years, excluding the disruption caused by the COVID-19 pandemic.
A reduction in the available workforce has also been linked partly to tighter immigration policies under the Trump administration.
Fed Rate Hike Expectations Fall
Investors are closely monitoring employment data as they assess the Federal Reserve’s next interest rate decision.
Before the latest jobs report, markets were debating whether the central bank might raise borrowing costs later this year to combat inflation driven partly by higher energy prices.
Higher interest rates can help slow inflation. However, tighter monetary policy can also weaken employment and overall economic activity.
Following the weak payroll figures, investors increasingly expect the Fed to leave rates unchanged at its September meeting.
Before the report was released, markets had assigned roughly a 55% probability to a rate hike next month.
Lower Rate Expectations Support Gold
Reduced expectations for higher interest rates are generally supportive for gold.
Because gold does not pay interest, rising borrowing costs can make interest-bearing assets more attractive by comparison.
If rates remain lower than previously expected, the opportunity cost of holding gold decreases.
This dynamic helped fuel Friday’s strong move in bullion.
Weaker U.S. Dollar Adds to Gold Rally
The U.S. dollar also weakened following the employment report.
The U.S. Dollar Index, which tracks the greenback against a basket of major global currencies, moved lower as traders reassessed the outlook for Federal Reserve policy.
A weaker dollar can provide additional support for gold because the precious metal becomes cheaper for buyers using other currencies.
That combination of falling rate expectations and a softer dollar created a favorable environment for gold prices.
Analysts Watch Whether Gold Breakout Can Continue
Tony Sycamore, senior market analyst at IG, said the U.S. nonfarm payrolls report could play an important role in determining whether gold’s latest breakout develops into a sustained rally.
The market will now be watching whether buyers can maintain momentum after the sharp move higher.
Upcoming inflation, employment and Federal Reserve signals could all influence gold’s next major direction.
Middle East Tensions Add Safe-Haven Demand
Geopolitical developments also supported demand for safe-haven assets.
Iranian media reported that Tehran had struck what it described as hostile targets in the Strait of Hormuz. Reports also suggested Iran could restrict U.S. and Israeli vessels from using the strategically important waterway.
The developments came as Iranian officials said negotiations with Oman over reopening shipping routes were approaching their final stages.
Separately, Iran-backed Houthi militants in Yemen reportedly launched another attack on Saudi Arabia.
The renewed tensions raised concerns that the regional conflict could spread further.
Strait of Hormuz Remains in Focus
Despite the latest escalation, U.S. President Donald Trump said he believed the conflict could end relatively soon.
He also maintained that the United States remained in control of the Strait of Hormuz.
The waterway remains critical to global energy markets because a significant amount of oil passes through the region.
Any prolonged disruption could push energy prices higher and revive inflation concerns worldwide.
Oil Prices Remain Volatile
Brent crude futures traded close to unchanged levels despite the geopolitical uncertainty.
Investors remain concerned that prolonged disruption to Middle Eastern shipping routes could trigger another rise in energy-driven inflation.
That scenario could complicate the outlook for central banks, including the Federal Reserve.
For gold, the combination of weaker U.S. employment data, lower rate expectations, a softer dollar and geopolitical uncertainty has created a powerful mix of supportive factors.
