Gold hits record highs, oil falls. Investors seek safe havens

For this to actually happen, two major obstacles must be overcome: the situation on the US labor market and inflation. We will learn about inflation trends this week, and it is likely that they will be in line with expectations. However, interpreting data from the US labor market is much more difficult.

On August 1, 2025, Donald Trump fired the head of the Bureau of Labor Statistics (BLS), Erika McEntarfer, just hours after the release of the employment report. He replaced her with Erwin Antoni, the former chief economist of the conservative think tank Heritage Foundation. He took office on August 12, so it is unlikely that he will make any significant changes to the data collection methodology. For this reason, no fundamental change in the calculations compared to the previous administration is to be expected for the time being. So how has the US labor market developed?

Few new jobs

In August 2025, the US economy created only 22,000 new jobs, which is well below economists' estimates of 75,000 jobs. The unemployment rate rose to 4.3 percent—the highest level since 2021, but in line with forecasts.

The Bureau of Labor Statistics further revised the employment data: the figures for June were revised downward by 27,000 jobs, and those for July were revised upward by 6,000 jobs. Overall, employment for June and July is thus 21,000 jobs below the originally reported figures.

These retroactive revisions angered Donald Trump and unsettled the markets, leading to the dismissal of Erika McEntarfer. However, the continuation of the revisions points more to shortcomings in the methodology of data collection than to personal failure on the part of the former head of the bureau.

Development of jobs created since the beginning of the year in the USA.

Normal monthly employment growth should be around 150,000 jobs. However, when significantly fewer jobs are created for several months in a row, investors' fears of a possible recession in the US grow. In macroeconomics, trends are crucial, and if the American labor market stagnates for three months in a row, a clear cooling trend emerges. This is no longer a normal deviation, but a systematic slowdown.

Unemployment trends in the US over the past year.

Monetary policy challenges

The markets reacted surprisingly positively, as the opposite logic applies in this case: the worse the situation on the labor market, the higher the probability that the US Federal Reserve (Fed) will cut interest rates.

The FedWatch analysis tool has rated the probability of the Fed leaving interest rates unchanged as zero. On the contrary, there was a possibility that interest rates could fall by as much as 50 basis points in September, even if this probability is still low at present.

However, the labor market is gradually deteriorating. The labor market data gave the Fed room to cut interest rates, but did not resolve the question of the long-term direction of monetary policy. A 25 basis point cut would be more of a symbolic gesture, showing that the Fed is monitoring the US economy and is ready to act. Interest rates for the US dollar remain high compared to the euro, so there is room for cuts.

However, the key question is: how much room is there?

At the Fed's upcoming meeting, it will be interesting to observe its long-term strategy. Under the current circumstances, a significant interest rate cut could fuel inflation, which is still not fully under control. The situation therefore remains complicated.

Bond market and budget deficits

Let's take a quick look at the bond market, which could trigger a crisis at any time. Yields on government bonds have fallen as the market is reassured by the expectation of an interest rate cut in September. However, this reassurance is only superficial.

Firstly, an interest rate cut by the central bank mainly affects short-term bonds, while long-term bonds are determined by inflation expectations, which so far do not indicate a significant decline in inflation.

Second, yield growth is driven by budget deficits. Last week, we did not learn how governments intend to remedy their chronic budget deficits. The situation will worsen in the long term due to rising debt servicing costs and the unfavorable demographic situation.

Development of yields on ten-year US bonds over the last month.

Commodities: Strong gold, weak oil price

Gold rose again last week, reaching new record highs. The weaker US dollar is contributing to this development, as the expected cut in interest rates is likely to lead to a further weakening of the dollar. Thanks to the rise in the price of gold and the increasing interest of central banks in this metal, another milestone has been reached: the value of gold reserves held by central banks now exceeds the value of US bonds in their portfolios.

This development confirms the long-term trend that central banks are losing confidence in US bonds and preferring gold.

Gold price development over the last month.

In contrast, oil prices continued to fall over the course of the week, with the price of US light oil (WTI) approaching the $61 per barrel mark. Pressure on oil prices is being driven by speculation that OPEC will raise production caps.

In addition, part of the negotiations between Donald Trump and Vladimir Putin in Alaska concerned cooperation in the energy sector, which is also contributing to the price decline. Analysts at Goldman Sachs estimate that the price of oil could fall to as low as $50 per barrel. This scenario would please motorists, but it depends on the cause of the decline.

The price of oil may fall due to a decline in demand, which would signal an economic recession. A more optimistic scenario assumes a price decline due to high production and an oversupply in the market, which could prevent an economic recession. Low oil prices are the goal of Donald Trump, who is committed to maintaining them. Cheap oil also has an anti-inflationary effect, which is beneficial in the current situation.

Development of the price of American light oil since the beginning of the year.

The case of US tariffs

A US court has declared the tariffs introduced by Donald Trump to be illegal. The markets have virtually ignored this news. The White House chief has decided to appeal the ruling and refer the matter to the US Supreme Court. Since he has a majority of constitutional judges on his side, no one expects the court to overturn the tariffs.

The decision on the legality of the tariffs is expected by October 17. Until then, the tariffs will remain in effect. However, if the tariffs are found to be illegal and overturned, this could cause significant turmoil in the financial markets.

What to watch this week

Investors will be watching developments in France closely, where the government has asked parliament for a vote of confidence. Few expect the government to win the vote. France could thus quickly slide into a political and institutional crisis. In addition, rating agencies will reassess the creditworthiness of French government debt this month, which could quickly put bonds in the spotlight on financial markets.

On Thursday, data on headline and core inflation in the US will be released. Most analysts expect inflation to stagnate or rise slightly. After the release of this data, it should be clearer how the US Federal Reserve will act at its next meeting.

The European Central Bank (ECB) will also meet on the same day. It is expected to leave interest rates unchanged, although a surprise cut cannot be ruled out, which would be welcomed in particular by France and other indebted eurozone countries. On the other hand, a further cut in interest rates would limit the ECB's room for maneuver in the event of a major financial crisis.