Gold and Dollar Rise Together as Euro Weakens and Oil Drops

The latest jobs report in the US surprised markets with weaker-than-expected numbers, cutting 60,000 jobs from previous months and pushing the unemployment rate to 4.2 percent. Despite this gold-friendly data, gold prices initially rose but then fell by $40, closing the week down 3.6 percent. The US dollar, however, rose alongside gold, a rare occurrence that raised questions about the market dynamics.

The divergence in gold and stock reactions can be traced to the bond market. Stocks rallied as the short-term end of the bond market priced in a softer Federal Reserve, while gold followed the long-term end, which remained elevated due to inflation concerns and high Treasury debt issuance. This setup suggests that gold needs both short and long-term yields to fall, along with a weakening dollar, to rally significantly.

Today, gold and the dollar are rising together due to specific factors. The euro's decline, driven by fiscal worries in France and Spain, boosted the US dollar index. Additionally, lower oil prices eased inflation expectations, benefiting gold. European investors are also buying gold as a hedge against bond market stress, further supporting its price.

The overall trend for gold remains influenced by US long-term yields and dollar movements. While today's rise in gold may be attributed to an oversold bounce, the broader trend is still bearish. The USD index is verifying a breakout above its May 2025 high, which could lead to further gold declines.