- Gold price consolidates weekly gains above $2,350, as US NFP holds the key.
- The US Dollar mires in three-week lows despite a modest uptick in Treasury bond yields.
- Gold price looks to extend an upside break toward $2,390, the June high.
- The daily RSI points north above the 50 level, supporting Gold buyers.
Gold price is consolidating near two-week highs of $2,365 reached on Wednesday, as the US Dollar (USD) continues to lick its wounds, shrugging off a minor bounce in the US Treasury bond yields. Gold price braces for the return of US traders from the July 4 holiday and the all-important Nonfarm Payrolls data for fresh impulse.
All eyes on US Nonfarm Payrolls, as dovish Fed bets intensify
With an Independence Day holiday in the US on Thursday, Gold price held higher ground near two-week highs while within a confined range due to thin liquidity conditions. Markets also stayed unnerved, as UK voters headed to polls, limiting the trading activity around the traditional safe-haven Gold price.
The Greenback continued to reel from the pain from the increase in the dovish expectations surrounding the US Federal Reserve (Fed) interest-rate cuts this year. This realized after Fed Chair Jerome Powell acknowledged progress in disinflation earlier this week. Additionally, a slew of recent US statistics also bolstered the Fed policy pivot bets, with the US private sector employment rising by 150,000 in June, following the 157,000 increase (revised from 152,000) recorded in May.
Meanwhile, the number of Americans filing first-time unemployment claims rose 4,000 last week to 238,000, according to Labor Department data released Wednesday.The figure was slightly higher than estimates of 235,000. Finally, US ISM Services PMI fell into contraction territory in June, arriving at 48.8 vs. May’s 53.8 and the expected 52.5 print.
Traders are pricing in a 73% chance of a cut in September, according to the CME FedWatch tool. Markets are also pricing in potentially two rate cuts this year.
All eyes now turn to the high-impact US labor market report due later on Friday at 12:30 GMT, which could have a strong bearing on the market’s pricing of the Fed rate cuts, affecting the value of the US Dollar and that of the Gold price.
US Nonfarm Payrolls are set to rise by 190K in June after recording a 272K gain in May while Average Hourly Earnings are expected to show a 3.9% growth annually, following a 4.1% advance previously. If these key data sets come in below the market consensus, it would reinforce bets for two Fed rate cuts this year and a September rate cut would be a done deal. In such a scenario, the US Dollar is likely to meet fresh supply, offering a fresh leg to the Gold price upside.
However, the Greenback could rebound firmly if the headline NFP and the wage inflation data surprise to the upside, prompting investors to dial down their dovish Fed expectations. This would render negative for the non-interest-bearing Gold price.
Gold price technical analysis: Daily chart
The short-term technical outlook for Gold price remains more or less the same, with risks appearing to the north after the yellow metal broke this week’s consolidation to the upside after closing Wednesday above the key 50-day Simple Moving Average (SMA), then at $2,338.
The bullish breakout could regain momentum on a weak US jobs report, driving Gold price higher toward the $2,400 threshold.
However, Gold buyers will need to take out the previous two-week high of $2,369 and the June high of $2,389, at first.
The 14-day Relative Strength Index (RSI) points north above the 50 level, adding credence to the bullish potential.
Alternatively, a strong US NFP report alongside hot wage inflation could drag Gold price toward the immediate support of the 50-day SMA, now pegged at $2,340.
Subsequently, Gold sellers could flex their muscles toward the 21-day SMA at $2,328 should the selling momentum intensify. A sustained move below the latter could accelerate the declines toward the $2,300 mark.
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.
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