Gold's Double Bind: ETF Outflows and Jobs Data Squeeze the Haven Trade

Gold slides 2% as strong US jobs data fuels rate hike expectations and ETF outflows hit $2B, with geopolitical tensions adding to inflation pressures.

Gold is wrestling with an uncomfortable truth: geopolitical tension, normally its strongest ally, is now amplifying the very forces that undercut it. The precious metal slid toward $4,450 an ounce on Friday, on track for a weekly loss exceeding 2%, as two distinct pressures converge. Institutional investors pulled $2 billion from physically backed gold ETFs in May, while a resilient US labor market is strengthening the case for the Federal Reserve to keep rates elevated — or even raise them again.

The latest blow came from the ADP private payrolls report, which showed 122,000 new jobs created in May, topping both the prior month's 109,000 and the consensus estimate of 118,000. A sturdy labor market gives the Fed leeway to maintain its restrictive stance. Markets are now pricing in nearly a 42% probability of a rate hike by December, according to CME FedWatch data. For gold, which offers no yield, rising real rates erode its appeal. The ISM services survey reinforced the hawkish tilt: prices paid by US service providers hit their highest level since 2022, fueled by rising costs for petroleum products and other commodities.

The ETF exodus compounds the rate headwind. Data from the World Gold Council show global outflows from physically backed gold funds totaled $2 billion in May, with Asia and North America accounting for $1.2 billion and $1.1 billion respectively. Europe partially offset the drain with $334 million of inflows. Total assets under management in gold ETFs slipped 2% to $604 billion. The pressure is visible at the SPDR Gold Shares, the largest such fund: its holdings fell to 1,026.86 tons as of June 3, down 8 tons from the prior week and 43.7 tons since the start of the year — a decline of 4.08%.

The geopolitical backdrop is doing little to reverse either trend. Iran's foreign minister Abbas Araghchi reported no meaningful progress in talks, while Hezbollah rejected a US-brokered ceasefire proposal, dashing hopes for a swift de-escalation between Israel and Lebanon. Rather than driving safe-haven bids into gold, the conflict is disrupting energy flows through the Strait of Hormuz, keeping oil prices elevated and stoking inflation expectations. That reinforces the Fed's hawkish bias and pushes Treasury yields higher. The World Economic Council says the probability of at least one rate hike by year-end stands at roughly 50%. The paradox is stark: more geopolitical stress does not automatically translate into higher gold prices.

Beneath the surface, however, structural demand continues to provide a floor. Central banks globally added a net 244 tons of gold in the first quarter, a 3% increase year-on-year. China's central bank alone bought roughly 8 tons in April, extending its purchasing streak to 18 months — its strongest monthly addition since December 2024. The freeze of roughly $300 billion in Russian central bank reserves in 2022 has driven many nations to diversify into physical gold, which sits outside the reach of foreign payment and sanctions systems. Goldman Sachs analysts, cited by Bloomberg, expect central bank buying to average 60 tons per month through the rest of the year, and the bank has maintained a bullish year-end price target of $5,400 an ounce.

For now, the short-term picture remains clouded. Gold is trading below both its 50-day moving average of $4,640.59 and its 200-day average, with the relative strength index at 43.9 — oversold territory, but not deeply so. Metals Focus expects total gold demand to shrink 2% in 2026, driven by double-digit declines in jewelry and central bank purchases, though it still sees room for a second-half rally if ETF outflows ebb and oil-driven rate pressure subsides. The first real test arrives with today's official US jobs report. A print above 85,000 would reinforce the rate-hike narrative; a decisive move back above $4,640 would signal the first technical relief. For now, gold remains caught between the twin weights of ETF liquidation and a labor market that refuses to cool.