Gold delivers breakout amid moderate employment, sticky wage growth

Gold price rebounds strongly as the US NFP report fails to match expectations.
Fresh payrolls in July were 187K lower than the consensus of 200K but marginally higher than June's print of 185K.
The market mood turns positive as investors digest Fitch’s downgrade of the US government long-term debt rating.

Gold price (XAU/USD) finds strength as the United States Nonfarm Payrolls (NFP) report fails to match expectations. The US labor market witnessed fresh addition of 187K payrolls in July, which was lower than the consensus of 200K but marginally higher than June's print of 185K. The Unemployment Rate remains lower at 3.5% than expectations and the former release of 3.6%. Payroll additions were not strong but the declining jobless rate could set a hawkish undertone for the Federal Reserve’s (Fed) September monetary policy.

Thursday’s economic calendar failed to trigger action in the Gold price despite the US Services PMI underperforming in July and the labor cost index growing at a slower pace in the April-June quarter. US factory activities are already in a contracting phase, therefore, resilience in the labor market seldom is a holding hand with the US Dollar and a restrictive measure for the Gold price.

Daily Digest Market Movers: Gold price rebounds despite stubborn wage growth

Gold price rebounds strongly amid mixed United States Nonfarm Payrolls report. Fresh employment additions were not as stronger as expected by the market participants.
The Unemployment Rate declines to 3.5% against expectations and June's print of 3.5%. While the wage price index turns out stubborn.
Monthly and annual Average Hourly Earnings remained steady at 0.4% and 4.4% while investors were anticipating a slowdown in wage growth.
Fresh payrolls were not strong enough despite Wednesday’s upbeat July ADP Employment Change report set a positive undertone.
The precious metal failed to find a decisive move on Thursday despite the US Services PMI delivering an underperformance and the labor cost index softening further.
US Services PMI for July remained lower at 52.7 against expectations of 53.0 and June’s reading of 53.9. Also, new orders at 55.0 remained surprisingly lower than an upwardly revised consensus of 55.6 and the former release of 55.5.
Crucial support for higher inflation in the US economy continues to be the rising labor cost index, but significantly weak growth in the wage cost index in the April-June quarter eases consumer inflation expectations.
Q2 Unit Labor Costs grew at a pace of 1.6% vs. investors’ expectations of 2.6% and a Q1 figure of 3.3% as the context of quick job change starts fading.
Monthly Factory Orders for June turned out surprisingly higher at 2.3% than upwardly revised expectations of 2.2% and May’s print of 0.4%.
The US economic calendar remains full of crucial events this week, but the show-stopper is the NFP report, which will be published at 12:30 GMT.
Also, Average Hourly Earnings will be of utmost importance. Per estimates, monthly wage data should grow at a pace of 0.3%, slower than the 0.4% recorded for June. Annual data is seen declining to 4.2%.
Gold price remains directionless as Fed policymakers deliver mixed interest rate guidance. Chicago Fed Bank President Austan Goolsbee favors further policy tightening despite easing inflationary pressures. Atlanta Fed Bank President Raphael Bostic thinks an interest rate hike in September is no longer required.
Meanwhile, Richmond Federal Reserve President Thomas Barkin said on Thursday that June’s inflation print was a good read. The Fed policymaker refrained from delivering guidance over policy action.
The US Dollar Index looks lost in the 102.40-102.80 range as the focus shifts to labor market data.
The market mood turns positive as investors digest Fitch’s downgrade of the US government's long-term debt rating.
US Secretary of State Blinken: I have not received a response yet from China's Foreign Minister Wang Yi on the invite to Washington. Blinken expects to have an opportunity to meet.

Technical Analysis: Gold price climbs above $1,940

Gold price oscillates in a narrow range above the crucial support of $1,930.00 as investors await US NFP for further guidance. The precious metal is exposed to the further downside amid a breakdown of the Head and Shoulders chart pattern on a smaller time frame. The yellow metal trades below the 20 and 50-day Exponential Moving Averages (EMAs), which portrays a bearish trend.

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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