Non-farm payroll disappoints, oil prices surge—what new tests does gold's logic face?

Recently, the gold market has been caught in an unprecedented stalemate between bulls and bears, with the tug-of-war around the $5,000 per ounce level intensifying. The unexpectedly weak U.S. February non-farm payroll data and cooling employment market should have boosted expectations for rate cuts and lifted gold prices. However, ongoing Middle East geopolitical conflicts have pushed oil prices sharply above $100, and inflationary pressures have delayed the Federal Reserve’s easing cycle, exerting a reverse pressure on gold prices. The conflicting factors are balancing each other out, and the traditional logic of gold pricing is facing new challenges.

1. What is gold trading now? Core trends and main drivers analysis

London Gold has recently been fluctuating within a wide range around $5,100 per ounce, with a year-to-date increase of over 15%. It has stabilized in a historic high zone but has yet to break previous highs and form a clear trend. The key reason is the interplay and intensified competition among several major drivers, which have become the main factors influencing gold price movements.

(1) Macro policy mainline: The Fed faces a dilemma between rate cuts and inflation control

In February, non-farm payrolls unexpectedly decreased by 92,000, and the unemployment rate rose to 4.4%, signaling a clear cooling of the employment market. This should have strengthened expectations for rate cuts and lowered real U.S. Treasury yields, which is positive for gold. However, geopolitical tensions in the Middle East have driven oil prices above $100 per barrel, and U.S. CPI in February still rose 2.4% year-over-year, indicating persistent inflation that exceeds market expectations. The Fed has been forced to delay rate cuts, causing the dollar index and U.S. bond yields to rebound slightly, directly suppressing gold’s upward momentum.

Table: Probability of rate cuts based on FedWatch tool

Source: CME FedWatch, updated March 16, 2026

The current federal funds target rate is 3.50%-3.75%. According to the FedWatch data, market expectations for rate cuts have shifted significantly later: at the June 2026 FOMC meeting, the probability of maintaining the current rate is still 76.9%. By October, the probability of a cut to 3.25%-3.50% rises to 40.2%, while the chance of a cut to 3.00%-3.25% by the end of 2026 is only 20.7%. This indicates the market has fully priced in a “later and slower” rate cut path. If oil prices continue to rise or CPI surprises on the upside, the Fed may further postpone the first rate cut to after Q4 2026, leading to prolonged high-level consolidation of gold prices.

(2) Geopolitical safe-haven mainline: Ongoing global conflicts

Intensified conflicts in the Middle East and rising shipping risks through the Strait of Hormuz—an energy artery carrying about one-third of global seaborne crude oil—have heightened concerns about stagflation and panic. Short-term safe-haven capital inflows have temporarily boosted gold prices. However, safe-haven sentiment is highly time-sensitive and fragile. Once conflicts ease or shipping resumes, these funds will quickly exit risk assets, causing gold prices to lose support and retreat, making it difficult to form a sustained upward trend.

(3) Central bank gold purchases: Long-term support but not a short-term catalyst

Global central banks have been steadily increasing their gold holdings for years. In 2026, their gold purchases remain at historically high levels, acting as an “invisible safety net” that effectively maintains the $5,000 support level and prevents significant declines. Central bank gold buying is driven by long-term strategies such as diversification of foreign exchange reserves, reducing dependence on the dollar, and hedging geopolitical and exchange rate risks. Emerging market central banks are particularly eager to buy, becoming the main force behind gold accumulation. However, their purchase pace is cautious and gradual, typically involving small batches and low-profile entry, making it unlikely to trigger short-term capital surges or rapid price increases. Therefore, central bank buying can support the long-term bottom but cannot reverse the current volatile bull-bear tug-of-war or serve as a short-term upward driver.

2. Weak non-farm data and rising inflation: Why hasn’t gold surged? What’s the underlying logic?

Weak non-farm payrolls should favor rate cuts, and soaring oil prices should reinforce gold’s inflation hedge properties. With these two factors, why is gold instead oscillating under pressure? Are the latest U.S. data bearish or bullish? This is a common confusion among investors. The seemingly contradictory market behavior is mainly due to short-term rate cut expectations being overshadowed by long-term concerns about high interest rates. Here’s a simple breakdown of the core reasons.

(1) Non-farm data are short-term disturbances; inflationary pressures delay rate cuts

In March, the U.S. Labor Department reported a net decrease of 92,000 non-farm jobs in February, far below the expected increase of 55,000, marking the first negative growth since October 2025. The unemployment rate rose to 4.4%, the highest since December 2025. The data were affected by short-term factors such as strikes in the healthcare sector and winter storms, but the employment slowdown trend is clear. The negative surprise in February reflects economic cooling, which should theoretically support rate cuts. However, this data is influenced by temporary factors and is not sustainable. The Fed is unlikely to start easing based on a single short-term report. Meanwhile, the rebound in inflation driven by rising oil prices is a persistent pressure that will disrupt the Fed’s rate cut timetable over the coming months. The market’s core expectation is for “delayed” rate cuts, not short-term positive signals from weak non-farm data. As a result, gold finds it hard to strengthen.

(2) High U.S. bond yields keep holding costs high; gold’s opportunity cost remains elevated

Recent tensions in the Middle East, rising shipping risks through the Strait of Hormuz, and soaring oil prices above $100 per barrel have temporarily heightened risk aversion. Concerns about supply chain disruptions and inflation have increased. The surge in oil prices has driven overall inflation higher, prompting the Fed to maintain high interest rates or even delay rate cuts further to curb inflation, keeping real yields on U.S. Treasuries elevated. Holding dollars and Treasuries yields stable interest income, while gold, which bears no interest and is subject to price volatility, becomes less attractive. Funds will thus periodically shift away from gold, suppressing its price performance.

3. Has the current gold allocation logic changed? Can you position now?

Considering the macro environment of weak non-farm data and rising oil-driven inflation, the long-term logic for gold allocation remains fundamentally unchanged. The short-term trading logic, however, is suppressed by high interest rates, entering a consolidation phase. Here’s an analysis of timing, key points, and risk management:

Unchanged long-term support; short-term just slowed

Gold prices are currently range-bound mainly because high U.S. bond yields and elevated holding costs suppress short-term gains. This does not mean the fundamental logic is invalid; rather, it provides a window for phased deployment. The core support for a long-term bullish trend remains solid: the Fed’s rate hike cycle is only delayed, not canceled; the U.S. employment slowdown and ongoing central bank gold purchases reinforce the bottom; geopolitical conflicts continue to highlight gold’s safe-haven value. Going forward, focus on easing Middle East tensions and Fed policy signals.

Can you position? Different investors have different strategies

For long-term asset allocation and inflation hedging, current conditions offer value. Small, phased purchases of gold ETFs—keeping gold at 5%-10% of total assets—can diversify risk and benefit from eventual rate cuts. Short-term traders should avoid heavy positions; instead, use range-bound strategies at key support/resistance levels to avoid chasing highs and getting trapped. In the medium term, if the Fed signals rate cuts and real yields decline, gold prices could continue rising, maintaining long-term allocation appeal.

Key signals and risks to watch

Monitor three key signals: (1) the sustainability of U.S. inflation and employment data to gauge Fed rate cut timing; (2) escalation or de-escalation of Middle East conflicts affecting safe-haven premiums; (3) U.S. bond yields and dollar index trends, which directly impact gold’s holding costs. Be alert to three risks: (a) unexpectedly hawkish Fed stance leading to a break below support levels; (b) easing of Middle East conflicts and safe-haven capital outflows causing short-term corrections; © sustained oil price surges triggering stagflation and increased volatility.

Gold-related products

With its core attributes of inflation protection and geopolitical risk hedging, combined with long-term support from global monetary easing and central bank gold purchases, gold remains a “stabilizer” in asset allocation. Recommended gold-related products include Gold ETFs such as E Fund Gold ETF (159934), E Fund Gold ETF Connect A/C (000307/002963).

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