Gold recovers though strong US NFP report elevated hawkish Fed bets

Gold price trades back and forth as investors await US official Employment data.
Taking cues from the US ADP Employment report, job creation is foreseen to slow.
Fed’s Daly sees no more rate hikes if the labor market slows and inflation remains close to 4%.

Gold price (XAU/USD) delivers V-shape recovery despite the United States Nonfarm Payrolls (NFP) report for September has reported that the number of job-seekers hired were significantly higher than expectations. Fresh payrolls were 336K while investors forecasted that US employers added 170K employees and 187K jobs were created in August. Weak Employment numbers from Automatic Data Processing (ADP) also elevated expectations of a decline in labor demand. The Unemployment Rate remained steady at 3.8% but a tick higher than expectations of 3.7%.

On a monthly basis, the Average Hourly Earnings grew at a steady pace of 0.2% while investors anticipated the growth in wage momentum by 0.3%. The annual wages softened marginally to 4.2% against estimates and the former release of 4.3%. Resilient labor market conditions have set a hawkish undertone for the Federal Reserve’s (Fed) upcoming monetary policy decision in November.

Robust labor demand Nonfarm is expected to intensify selling pressure in the US Treasuries and would weaken the appeal for Gold. Apart from that, expectations of one more interest rate increase from the Fed in the remainder of 2023 would deepen. This is expected to discomfort Fed policymakers and spur consumer inflation expectations.

Daily Digest Market Movers: Gold price attracts bids despite upbeat US labor market

Gold price rebounds strongly despite the robust labor demand has elevated hopes of one more interest rate increase from the Federal Reserve (Fed)
This week, the precious metal remained under pressure despite a soft US Services PMI report and soft ADP Employment report.
On Wednesday, ADP reported that the US private sector added 89K jobs in September, half the number it reported in August. Job growth in the leisure and hospitality sectors remained robust, while layoffs were witnessed in the manufacturing and transportation sectors.
"We are seeing a steepening decline in jobs this month"." Additionally, we are seeing a steady decline in wages in the past 12 months," Nela Richardson, chief economist at ADP, said.
US Services PMI for September remained in line with estimates at 53.6, but the New Orders component came in significantly lower at 51.8 against the former release of 57.5. Being a proxy to the US service sector, which accounts for two-thirds of the US economy, a poor demand outlook could weaken the appeal for the US Dollar.
The US Dollar Index (DXY) has corrected to near 106.30 from its 11-month high of 107.35. Still, the broader outlook will be shaped by the Nonfarm Payrolls data, which will be published at 12:30 GMT.
Meanwhile, the weekly jobless claims for the week ending September 29 remained broadly unchanged. Individuals claiming jobless benefits for the first time increased marginally to 207K from the former reading of 205K but lower than expectations of 210K.
The US Treasuries faced an intense sell-off this week due to the collaboration of expectations that interest rates will remain high amid a resilient US economy and concerns over rising fiscal deficits. 10-year US Treasury yields trades around 4.73%.
Chicago Federal Reserve Bank President Austan Goolsbee sees no more upside in Treasury yields and expects the US economy to remain on the ‘golden path’ towards a 2% inflation goal.
About the interest rate outlook, San Francisco Fed Bank President Mary Daly said that another rate hike may not be needed if the labor market slows, inflation remains around 4% and financial conditions remain tight.
Earlier, economists at ING said that a strong NFP read could easily put markets back on a bearish track and reignite aggressive Dollar buying.

Technical Analysis: Gold price finds support near $1,810

Gold price discovers buying interest after dropping to near $1,810 as investors ignore the release of the better-than-anticipated NFP report. A death cross, represented by the 50-day and 200-day Exponential Moving Averages (EMAs) at $1,905.00, warrants more downside. Momentum oscillators have turned extremely oversold.

Nonfarm Payrolls FAQs

What are Nonfarm Payrolls?

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.

How does Nonfarm Payrolls influence the Federal Reserve monetary policy decisions?

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.

How does Nonfarm Payrolls affect the US Dollar?

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.

How does Nonfarm Payrolls affect Gold?

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.

Sometimes Nonfarm Payrolls trigger an opposite reaction than what the market expects. Why is that?

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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