The gold rally is only a positive thing if you have gold in your portfolio. Trivial? Not exactly. Especially if we remember a valuable rule: rising gold prices are often driven by fear.
Do you have gold in your portfolio? Probably, and if so, you’ll be satisfied to know that the trend remains positive. Indeed, strongly positive. But, in some ways, perhaps even too positive. You should know that while your gold investment is gaining value, there’s a force pushing it upward. And this force has a specific name: fear. Fear of what? Looking at the macroeconomic data, something emerges that might raise more than a few suspicions.
Gold, always a safe haven, moves when investors seek protection. And today, protection is not a vague concept, but the direct response to concrete signals coming from the job market and the Federal Reserve. And this is where the story gets interesting.
Signals from US employment and Fed rate cuts
The starting point is the US employment report, called by industry insiders Non-Farm Payrolls (NFP), which measures the number of new jobs created in the United States, excluding the agricultural sector. In recent months, the figure has surprised to the downside, indicating that the US economy is creating fewer jobs than expected.
Added to this is unemployment slightly above its historic lows. We’re not yet at a critical stage, but it’s enough to set off alarm bells. Why? Because behind the scenes, a key player is at work: the Federal Reserve.
If the Fed begins to consider rate cuts, it’s not necessarily good news. In theory, a lower rate stimulates growth and supports markets. But if Powell and colleagues choose to cut in a context of inflation that’s not yet fully under control, it means they fear something bigger.
And guess what immediately benefits from this scenario? gold. The opportunity cost of holding it is falling (because bond yields are falling), and demand for the yellow metal is exploding. It’s no coincidence that its recent rally coincides with the increased likelihood of cuts.
Why it could turn into a trap
So far, everything seems straightforward: the Fed cuts, and gold rises. But is this really good news for investors overall? Perhaps not.
The problem is that while gold is rising, stock markets are moving more fragilely. Valuations, particularly the Price/Earnings (P/E) ratio, are at extremely high levels: on average, higher than in the period before the bursting of the dot-com bubble. This means that valuations are stretched, and any contraction in corporate earnings could result in a sharp repricing.
If earnings decline and prices follow, gold ceases to be the positive sign many see, becoming a symptom of a broader problem: the real economy slows and risky assets are penalized. In this context, the precious metal’s rally could prove to be a misleading signal, a hedge that makes you feel safe but is actually signaling that the rest of your portfolio is exposed to growing risks.
Original article published on Money.it Italy 2025-09-10 07:49:00. Original title: Il boom dell’oro potrebbe trasformarsi in una trappola
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