US Jobs Report: Gold extends finger higher as jobs data mixed

  • US jobs report headline figure shows 311K rise, beating the 205K forecast.
  • Result is tempered, however, by Unemployment Rate which rises to 3.6% from 3.4%
  • Avg. Hourly Earnings also falls below expectations, showing 0.2% MoM vs. 0.3% forecast and 4.6% YoY vs. 4.7% expected. 
  • Gold price spikes higher, reaching $1,840s in minutes after release.

Gold price extended a finger higher, touching a high of $1,842.55 on the intraday chart, after the release of the US jobs report for February painted a mixed picture of the US labour market which, overall, was digested as negative for the US Dollar. 

Although the data showed the US economy added 311K jobs in February, beating economists' expectations of 205K, the other data within the report – including the overall Unemployment Rate, which rose to 3.6% and Average Hourly Earnings which slowed to 0.2% – failed to meet expectations, and eclipsed the solid headline figure. The result is lower inflation expectations, traders pricing in a a shallower Federal Reserve rate hiking curve, and the US Dollar selling off. 

Since the Gold price is inversely correlated to the US Dollar  (because Gold is priced in Dollars) this explains the rise in Gold. 

The US jobs report also showed the previous month's result of 517K jobs in January revised down to 504K. The Unemployment Rate unexpectedly rose to 3.6% vs. 3.4% forecast. Average Hourly Earnings showed a 0.2% MoM rise vs. 0.3%, falling below the key 0.3% threshold for the first time in over a year, and YoY came out at 4.6% YoY vs. 4.7% expected. Average Weekly Hours came out lower at 34.5 vs 34.6 forecast and previous and Labour Force Participation at 62.5% vs 62.3% forecast and 62.4% previous. 

Overall the data led traders to downgrade the probabilities of the Federal Reserve increasing interest rates by 0.50% at the March 22 FOMC to below 50%, when prior to the release they stood above 60%. 

"Fed Swaps downgrade odds of 50 bps March rate hike to under 50% vs. around 60% pre-NFP release." Said Dhwani Mehta, Senior Analyst at FXStreet, adding, "US short-term interest-rate futures jump after the jobs report as traders price in shallower Fed rate hike path."

From a technical perspective Gold price's bounce temporarily reverses the short-term downtrend that has been in force since the start of February, although it will require a break above the $1,858 March 6 highs to make a convincing case the prior uptrend has returned. Until then the precious metal is expected to oscillate in a sideways range between the $1,800 support lows and thge $1,858 swing higher low, with breaks required of these key levels to define the next phase of trending activity.

Gold price has been in a downward spiral since the start of February, and with the next major release for the commodity likely to be the US Bureau of Labor Statistics US jobs report for February, scheduled for release on Friday, March 10, traders may be wondering whether this will continue.

The impact of Nonfarm Payrolls (NFP) on Gold will depend on whether the labor data influences current elevated inflation expectations. 

Gold price took a leg lower on Tuesday after comments by the Chairman of the Federal Reserve (Fed) showed he thought interest rates would have to rise in bigger steps to combat persistent inflation. Powell’s comments strengthened the US Dollar, since it benefits from higher US interest rates via the ‘carry trade’, a type of trade in which global investors move money around to jurisdictions where they can earn the most interest. Since Gold is priced in USD, it tends to fall when the US Dollar strengthens, which is why it weakened. US Treasury bonds also fell (their yields rose) and currently Gold price tends to go the same way as bonds. 

Data from China at the start of the week – Gold’s biggest market – suggesting demand was softening also didn’t help the precious metal. 

How will Gold price react to the US jobs report figures?

The US jobs report, scheduled to be released at 13:30 GMT, could provide important information, either confirming or tempering Powell’s hawkish comments. This is because the more people there are in employment, earning and spending money, the more likely inflation is to rise. As such, the headline Nonfarm Payrolls number could influence whether Gold’s downtrend makes further headway or not. A result that implies inflation will remain high will be negative for Gold and vice versa for the opposite.

Economists expect the NFP to show an average-level 205K jobs were added to the economy in February. 

If the actual print is substantially higher – say by a margin of 50K or more – it will reinforce Powell’s fears about high inflation. This will increase expectations the Federal Reserve will raise interest rates more aggressively, further strengthening the US Dollar, and causing Gold price to depreciate. 

If the print is substantially lower by a similar margin, it will have the opposite effect and enable Gold price to recover.

In truth, market expectations are already quite elevated that the Fed will raise interest rates by a bigger 0.50% hike at the meeting on March 22, rather than the 0.25% previously expected. 

A market-based tool for gauging probabilities for different rate hikes, the CME FedWatch tool, places a 79% probability of a 0.50% hike, at the time of writing. This has increased from only 31% a week ago, before Powell’s speech. Therefore, one might argue there isn’t that much upside left, and perhaps more opportunity to the downside.

There are some other things to consider regarding the US jobs report:

  • Nonfarm Payrolls in January showed a bumper 517K increase and this may get revised, probably down. 
  • Average Hourly Earnings are another important figure within the report since they are a key driver of inflation. They are expected to show a rise of 0.3%, the same as last month. The metric has not fallen beneath 0.3% for over a year, therefore if it were to fall below this key threshold, to say 0.2%, for example, it might dampen inflation expectations and provide relief to the Gold price. 
  • Unemployment Rate is another significant data point in the report. In January it fell to a post-covid record low of 3.4% and economists expect it to remain at that level in February.
  • Labor Force Participation Rate – the percentage of working age people participating in the economy – is at a multi-year high of 62.4% and economists estimate it will fall to 62.3%. A fall in participation can take the edge of gains in other areas of the labor market.

From a technical perspective, Gold price appears to have reversed the steady-eddy uptrend that started in November 2022 and peaked at $1,960 on February 2. 

XAU/USD Daily Chart 

Since then it has been going down and is now in a concerted short-term downtrend, with a bias that favors bears. 

There are, however, significant support levels standing in the way of further declines. Both the 50 and 100-week Simple Moving Averages (SMAs) lie just below last week’s lows at $1,804 and the 100-day SMA is at the same level. These provide a triple lock of formidable SMAs acting as a hard floor under price, which is currently consolidating at $1,817. 

XAU/USD Weekly Chart

Only a clear break and close below them – confirmed by a daily close below $1,790 would provide confirmation of a break and continuation of the downtrend. RSI is currently showing a lack of underlying strength in the last sell-off following Powell’s comments, so more downside may be hard work for bears. 

If a successful break does occur the next downside target would probably be at the 100% extrapolation of the recent decline to a target at $1,864, followed by the 0.618 Fibonacci retracement of the uptrend from November 2022 to February 2023, at $1,748.

A surprise rebound from a negative Nonfarm Payrolls number, for example, might see Gold price recover to the March 6 highs at $1,864 again, reversing all of the Powell downfall, at retesting resistance at that level. 

US jobs report related content

About the US jobs report

The US jobs report, published by the US Bureau of Labor Statistics, lists all new jobs created in nonfarm sectors over the previous month.

Job market data is strongly linked to the monetary policy of the US Federal Reserve, which can cause large fluctuations in financial markets. The NFP number is released alongside revisions to data from previous months, which are also closely watched by currency and stock traders.

Better-than-expected readings are generally considered favorable (or bullish) for the US Dollar, while worse-than-expected numbers are considered negative (or bearish) for the Greenback. The Unemployment Rate and Average Hourly Earnings numbers are often just as important as the NFP headline.

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