Gold Surge Raises Stagflation Concerns Despite Market Rally

Highlights:

• Gold soared 1.1% to US$3,570.73 at the time of writing, hitting another record high as stagflation fears intensified.
• US job openings fell sharply, raising the probability of a Fed rate cut in the coming weeks to 96% at the time of writing.
• Concerns over Fed independence and rising inflation fueled safe-haven demand, with Goldman Sachs forecasting gold could reach US$4,500 an ounce.

Market Relief Turns Cautious

Stocks rose and bond yields eased in the latest US trading session, but the underlying signals in the economy suggest caution. Official data released midweek showed US job openings were far weaker than expected, highlighting labour market softness that Federal Reserve Chair Jerome Powell has been warning about. This pushed traders to price in a 96% chance of a Fed rate cut in the coming weeks at the time of writing, sparking a relief rally in equities and bonds.

Gold Hits New Record

Amid the optimism, gold continued its relentless climb. The spot price of the precious metal jumped 1.1% to US$3,570.73 at the time of writing, marking another record high. Traditionally, gold benefits from rate cuts as lower bond yields make the non-yielding asset more attractive. Gold is becoming the preferred safe haven as concerns over stagflation and uncertain policy directions mount.

Fed’s Beige Book Highlights Weakness

The Federal Reserve’s Beige Book added to investor unease, noting three concerning trends: stagnant economic growth, households struggling with rising prices, and a slowdown in hiring.The analysis renewed worries about stagflation, a situation defined by high inflation and limited economic expansion. Analysts warned that while rate cuts may provide temporary relief, they often signal deeper structural

issues in the economy.

Political Pressure on the Fed

Investor confidence was further pressured by doubts about the Fed’s ability to operate independently. The Trump administration’s attempts to influence monetary policy, including moves to reshape the Fed’s leadership, have amplified fears of long-term inflation. Macquarie strategist Viktor Shvets said it is “only a matter of time before the administration will have full control over Fed policies.”

Outlook: Gold Shines Brightest

Goldman Sachs advised clients to boost exposure to commodities, especially gold, forecasting potential upside to US$4,500 an ounce. The surge underscores investor belief that gold remains a safe haven in an era of heightened uncertainty.

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