Gold reaches one-month high on signs of cooling jobs market

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  • Gold price leaped over 1% to $2,385, spurred by mixed US NFP data and heightened Fed rate cut speculation.
  • June NFP surpasses forecasts, yet revisions for April and May indicate an accelerating labor market cooldown.
  • US Dollar Index (DXY) declines 0.16% to 104.95; 10-year Treasury yield drops more than six basis points to 4.284%.

The Gold price rallied during the mid-North American session following the release of June’s US Nonfarm Payrolls (NFP) report, which exceeded forecasts, but two previous months’ downward revisions hinted that the labor market is cooling faster than the figures show. Therefore, traders bet that the Federal Reserve (Fed) will cut rates in September, increasing a headwind for the Greenback and a tailwind for the yellow metal.

The XAU/USD trades at $2,385 and registers gains of over 1% after bouncing off daily lows of $2,349, sponsored in part by a weaker US Dollar, which remains undermined by lower US Treasury bond yields.

The US Dollar Index (DX) is losing 0.16%, down to 104.95, while the US 10-year benchmark yield tumbles more than six basis points (bps) to 4.284%.

US NFPs for June were positive, but the data from April and May were downwardly revised, hinting that the economy added 111,000 fewer jobs than reported in those two months. Consequently, the Unemployment Rate rose a tenth in June, above consensus.

Other data from the US Bureau of Labor Statistics (BLS) revealed that Average Hourly Earnings (AHE) remained flat MoM but declined yearly.

Aside from this, geopolitics continued to play an important role in the golden metal’s path. Israeli Prime Minister Benjamin Netanyahu sent a delegation to continue negotiations on hostages and reiterated the war wouldn’t end until Israel achieves all its objectives. Meanwhile, a Hamas leader said they’re waiting for a positive response from Israel to start negotiations on the details of a deal, according to CNN.

Daily digest market movers: Gold price advances post US NFP

  • US Nonfarm Payrolls increased by 206K, surpassing the estimated 190K, but April and May’s figures were revised down to 108K and 218K, respectively.
  • Average Hourly Earnings (AHE) declined from 4.1% to 3.9% YoY, which is in line with expectations, while the Unemployment Rate increased from 4% to 4.1%.
  • On Wednesday, the Federal Open Market Committee (FOMC) revealed June’s Meeting Minutes, which showed that most participants estimated that the current policy is restrictive but had opened the door for rate increases. Policymakers acknowledged the economy is cooling and could react to unexpected economic weakness.
  • According to the CME FedWatch Tool, odds for a 25-basis-point Fed rate cut in September are at 70%, up from 66% on Thursday.
  • December 2024 fed funds rate futures contract implies that the Fed will ease policy by 40 basis points (bps) toward the end of the year.

Technical analysis: Gold price crushes Head-and-Shoulders neckline, aims for $2,400

Gold price has decisively broken the Head-and-Shoulders neckline, lifting spot prices near the $2,390 mark, indicating that bulls are in charge and higher prices lie ahead.

The momentum has shifted in buyers’ favor as depicted by a bullish Relative Strength Index (RSI). A daily close above the June 21 high of $2,368 could open the door for a higher trading range within the $2,370-$2,400 area, with buyers targeting higher prices.

If the price breaks above $2,400, it will expose the year-to-date high of $2,450 before challenging $2,500.

On the other hand, if sellers drive the spot price below $2,350, further declines could target the $2,300 level. If this support fails, the next demand zone would be the May 3 low of $2,277, followed by the March 21 high of $2,222.

Nonfarm Payrolls FAQs

Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.

The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.

Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.

Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.

Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.