Gold (XAU/USD) traded little changed on Thursday, moving in a narrow range as traders digest the mixed batch of late US jobs data for September. At the time of writing, the XAU/USD pair is trading at around $4.0873.
The mood in the markets improved after Nvidia posted strong earnings, which led to a rebound in global stocks and eased safe-haven flows into gold. Moreover, the strength of the US Dollar (USD) with investors reducing their expectations for a December interest rate cut by the Federal Reserve (Fed) is adding pressure and limiting the metal’s upside.
Markets saw a sharp repricing of price expectations after the Bureau of Labor Statistics confirmed that the October Employment Situation report would be released with November data. In addition, minutes from the hawkish-leaning Federal Open Market Committee (FOMC) meeting published on Wednesday reinforced expectations that the Fed may leave interest rates unchanged in December.
Market Drivers: USD stabilizes after upbeat non-farm payrolls surprise
- The US Dollar Index (DXY), which measures the greenback against a basket of six major currencies, is trading around 100.18, hovering near its highest levels since August and back in the area last seen on November 5.
- September non-farm payrolls rose by 119K, comfortably beating expectations for a 50K increase. The August reading was revised to a decline of 4K instead of the previously reported gain of 22K. The unemployment rate rose to 4.4%, slightly above estimates of 4.3% and unchanged from the previous month.
- Average hourly earnings rose 0.2% month over month in September, slightly below expectations of 0.3% and below the 0.4% increase seen previously. On an annual basis, wages rose by 3.8%, matching the previous reading and coming in slightly above expectations of 3.7%. Average weekly hours worked remained steady at 34.2, in line with expectations.
- October FOMC minutes were hawkish, with many policymakers noting that inflation had risen since earlier in the year and remained above the 2% target, while progress toward combating inflation has stalled. Many participants felt that further rate cuts were not necessarily appropriate at the December meeting. The minutes also noted that although most participants favored a 25 basis point rate cut in October, some said they could have supported leaving interest rates unchanged.
- The US Bureau of Labor Statistics (BLS) confirmed on Wednesday that the October jobs report had been delayed after the government shutdown prevented officials from collecting key data, including inputs needed to calculate the unemployment rate. The missing October numbers will now be released with the November jobs report on December 16, reducing the data available to the Fed ahead of the FOMC meeting on December 9-10.
- According to the CME FedWatch tool, markets are pricing in a 31.8% probability of a rate cut in December, down from about 50% a week ago. Attention now turns to the September non-farm payrolls report, which may change expectations again. Economists expect salaries to rise by about 50,000, compared to the increase of 22,000 recorded in August.
On the 4-hour chart, the XAU/USD pair is consolidating above the key confluence support area near $4,050, where the 100-period simple moving average is offering immediate technical support. As long as the price remains above the 100 simple moving average, the short-term outlook remains constructive. However, a clear break below this confluence zone would weaken the technical bias and open the door towards the $4,000 level.
On the upside, gold still faces strong resistance in the $4,100-$4,150 range. A decisive break above $4,150 will be needed to revive bullish momentum, paving the way for a move towards $4,200, with further subsequent buying likely to expose $4,250 next.
The Relative Strength Index (RSI) on the 4-hour time frame is hovering near the 45 level, reflecting a neutral to slightly bearish momentum setup. A recovery in the RSI through the 50 mid-line should help improve the upside.
(This story was corrected on 20 November at 14:31 GMT to say that gold is trading little changed on Thursday, not Wednesday.)
Frequently asked questions about non-farm payrolls
Nonfarm Payrolls (NFP) are part of the monthly jobs report released by the U.S. Bureau of Labor Statistics. The nonfarm payrolls component specifically measures the change in the number of people employed in the United States during the previous month, excluding the agricultural industry.
The nonfarm payrolls number could influence the Fed’s decisions by providing a measure of how well the Fed is meeting its mandate of promoting full employment and 2% inflation. A relatively high NFP number means that more people are working, earning more money, and therefore likely spending more. On the other hand, a relatively low non-farm payrolls result may mean that people struggle to find work. The Fed typically raises interest rates to combat high inflation caused by low unemployment, then lowers them to stimulate a sluggish labor market.
In general, non-farm payrolls are positively correlated with the US dollar. This means that when salary numbers appear higher than expected, the US dollar tends to rise and vice versa when they are lower. Nonfarm payrolls affect the US dollar by virtue of their impact on inflation, monetary policy expectations, and interest rates. A rise in non-farm payrolls usually means that the Fed will be more hawkish in its monetary policy, which supports the US dollar.
Nonfarm payrolls are generally negatively correlated with the price of gold. This means that higher than expected salary numbers will have a negative impact on the price of gold and vice versa. Rising non-farm payrolls generally have a positive impact on the value of the US dollar, and like most major commodities gold is priced in US dollars. If the US dollar rises in value, it will take fewer dollars to buy an ounce of gold. Higher interest rates (which have traditionally helped increase nonfarm payrolls) also reduce gold’s appeal as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls are only one component within the larger payrolls report and can be overshadowed by others. Sometimes, when the US non-farm payrolls report is higher than expected, but average weekly earnings are lower than expected, the market has ignored the potential inflationary impact of the headline result and interpreted the earnings decline as deflationary. The components of the participation rate and average weekly hours can also influence the market reaction, but only in rare cases such as the “big resignation” or global financial crisis.
