US January Nonfarm Payrolls Preview: Analyzing Gold price's reaction to NFP surprises


  • Nonfarm Payrolls in the US are forecast to increase by 180,000 in January.
  • Gold is likely to react stronger to a disappointing jobs report than an upbeat one.
  • Gold price's inverse-correlation with NFP surprise weakens slightly by the fourth hour after the release.

Historically, how impactful has the US jobs report been on gold’s valuation? In this article, we present results from a study in which we analyzed the XAU/USD pair's reaction to the previous 35 NFP prints*.

We present our findings as the US Bureau of Labor Statistics (BLS) gets ready to release the January jobs report on Friday, February 2. Expectations are for a 180,000 rise in Nonfarm Payrolls following the stronger-than-expected 216,000 increase recorded in December.

*We omitted the NFP data for March 2021 and March 2023, which were published on the first Friday of April, due to lack of volatility amid Easter Friday.

Methodology

We plotted gold price’s reaction to the NFP print at 15 minutes, one hour and four hours intervals after the release. Then, we compared the gold price reaction to the deviation between the actual NFP release result and the expected result. 

We used the FXStreet Economic Calendar for data on deviation as it assigns a deviation point to each macroeconomic data release to show how big the divergence was between the actual print and the market consensus. For instance, the August (2021) NFP data missed the market expectation of 750,000 by a wide margin and the deviation was -1.49. On the other hand, February’s (2021) NFP print of 536,000 against the market expectation of 182,000 was a positive surprise with the deviation posting 1.76 for that particular release. A better-than-expected NFP print is seen as a USD-positive development and vice versa.

Finally, we calculated the correlation coefficient (r) to figure out at which time frame gold had the strongest correlation with an NFP surprise. When r approaches -1, it suggests there is a significant negative correlation, while a significant positive correlation is identified when r moves toward 1. Since gold is defined as XAU/USD, an upbeat NFP reading should cause it to edge lower and point to a negative correlation.

Results

There were 12 negative and 23 positive NFP surprises in the previous 35 releases, excluding data for March 2021 and March 2023. On average, the deviation was -0.89 on disappointing prints and 1.4 on strong figures. 15 minutes after the release, gold moved up by $6.9 on average if the NFP reading fell short of market consensus. On the flip side, gold declined by $5.17 on average on positive surprises. This finding suggests that investors’ immediate reaction is likely to be more significant to a weaker-than-forecast print.

The correlation coefficients we calculated for the different time frames mentioned above are not close enough to -1 to be considered significant. The strongest negative correlations are seen 15 minutes and one-hour after the releases, with the r standing at around -0.54 and -0.51, respectively. Four hours after the release, r edges higher to -0.43.

Several factors could be coming into play to weaken gold’s inverse correlation with NFP surprises. A few hours after the NFP release on Friday, investors could look to book their profits toward the London fix, causing gold to reverse its direction after the initial reaction.

More importantly, underlying details of the jobs report, such as wage inflation, as measured by the Average Hourly Earnings, and the Labor Force Participation rate, could be having an impact on market reaction. The US Federal Reserve (Fed) clings to its data-dependent approach and the headline NFP print, combined with these other data, could drive the market pricing of the Fed's next policy action.

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended Content


Recommended Content

Editors’ Picks

AUD/USD plunges to near 0.6400 as weak Aussie GDP boosts RBA dovish bets

AUD/USD plunges to near 0.6400 as weak Aussie GDP boosts RBA dovish bets

Disappointing data results from key fundamentals in Australia weighed heavily on the Aussie Dollar, sending AUD/USD to fresh four-month lows in the boundaries of the key contention zone at 0.6400.

AUD/USD News
EUR/USD holds near 1.0500 ahead of Powell speech

EUR/USD holds near 1.0500 ahead of Powell speech

EUR/USD managed to clinch its second day in a row of gains, extending the recent breakout of the 1.0500 mark in response to the inconclusive tone in the US Dollar ahead of key US data releases later in the week.

EUR/USD News
Gold advances to $2,650 area as US yields edge lower

Gold advances to $2,650 area as US yields edge lower

Following a consolidation phase near $2,640, Gold gains traction and rises to the $2,650 area. The benchmark 10-year US Treasury bond yield pushes lower after weak macroeconomic data releases from the US, helping XAU/USD stretch higher.

Gold News
Crypto Today: Ethereum price crosses $3.7K as Tron and Avalanche lead DeFi Market rally

Crypto Today: Ethereum price crosses $3.7K as Tron and Avalanche lead DeFi Market rally

Ethereum price crossed the $3,700 mark as it outperformed Bitcoin on Wednesday amid positive tailwinds from news reports that the Securities & Exchange Commission (SEC) could approve staking for crypto ETFs in the US.

Read more
Four out of G10

Four out of G10

In most cases, the G10 central bank stories for December are starting to converge on a single outcome. Here is the state of play: Fed: My interpretation of Waller’s speech this week is that his prior probability for a December cut was around 75% before the data.

Read more
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

Majors

Cryptocurrencies

Signatures