It may seem strange that gold jumped on news of a weak US economy. This Friday July 3, gold rose about 1.3% to around $4,176 per ounce because the US added far fewer jobs than expected in June. For many people, this is counterintuitive — surely a weak economy is bad news? But in the world of gold, a weak jobs report is often very good news, and understanding this relationship is one of the most valuable things any gold buyer can learn. Here is the logic, explained simply.

The connection runs through the Federal Reserve and interest rates. Gold pays no interest — it earns nothing just by sitting in a vault. This means gold competes directly with things like savings accounts and government bonds, which do pay interest. When interest rates are high or rising, those interest-paying assets become more attractive, and gold suffers. When interest rates are low or falling, gold becomes relatively more attractive, and it tends to rise. So anything that changes the outlook for interest rates moves the price of gold — and the jobs report is one of the most important pieces of data the Fed watches when deciding on rates.

Here is how it played out this week. The US economy added just 57,000 jobs in June — far below the 110,000 that economists had forecast, and the fewest in four months. A weak jobs report signals that the economy is slowing down. When the economy slows, the Federal Reserve becomes reluctant to raise interest rates, because higher rates would slow it further and risk causing real damage. So the weak jobs data told markets that the Fed is now much less likely to hike rates. The probability of a rate hike at the Fed’s late-July meeting collapsed from around 66% to under 30%. New Fed Chair Kevin Warsh added to this by noting that inflation expectations have come down. With rate hikes now looking unlikely, gold rallied.

There is a second supporting factor this week. The US-Iran talks in Doha concluded with positive progress on reopening the Strait of Hormuz, the ceasefire is holding, and oil has fallen back to around $70 a barrel — roughly its pre-war level. Lower oil means lower inflation, which gives the Fed even more room to hold off on rate hikes. Everything is pointing in the same direction: a patient Fed, which is good for gold.

For Gulf jewellery buyers, this week’s rebound carries an important message. Gold had fallen to an eight-month low on fears of aggressive Fed hikes. Those fears have now sharply reversed, and gold has bounced about 4% this week — its best week in months. Gold at $4,176 remains up 25.2% over the past year. The structural demand is strong: roughly 90% of central banks expect global gold reserves to rise over the coming year. This week showed how quickly gold can recover when the Fed outlook shifts. One note: US markets are closed today for the Independence Day holiday, so please confirm the live price before purchasing, as thin trading can cause sharper moves.