Gold (XAU/USD) trades on the front foot on Thursday as the US Dollar (USD) weakens amid rumors of a potential intervention by Tokyo after the Japanese Yen (JPY) hit a 40-year low earlier this week. The Greenback extended its losses following a weaker-than-expected US Nonfarm Payrolls (NFP) report.
At the time of writing, XAU/USD trades around $4,120, up nearly 2.20% on the day. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 100.75, hitting a two-week low.
Data released by the US Bureau of Labor Statistics (BLS) showed the US economy added 57K jobs in June, well below market expectations of 110K. Meanwhile, May’s payrolls were revised lower to 129K from the previously reported 172K.
Meanwhile, the Unemployment Rate unexpectedly edged lower to 4.2% from 4.3% in May. Average Hourly Earnings rose 0.3% MoM and 3.5% YoY in June, matching market expectations.
The weak NFP print helped cool expectations of a more hawkish Federal Reserve (Fed), pushing Gold above its one-week trading range to trade above the $4,100 mark. According to the CME FedWatch Tool, the probability of a rate increase in September fell to 51% from 63% before the data release.
Still, monetary policy is expected to remain restrictive for longer after Fed Chair Kevin Warsh reiterated his commitment to restoring inflation to its 2% target at the European Central Bank (ECB) Forum on Wednesday. “We are in the price stability business,” he said, even as he acknowledged that “inflation risks have come down.”
San Francisco Fed President Mary Daly said on Thursday, “It’s possible we may have to fight more persistent inflation,” while adding, “Can’t decide right now, can’t give false guidance on rates.”
Against this backdrop, Gold may struggle to stage a meaningful recovery as traders continue to anticipate that the Fed could raise interest rates later this year.
However, inflation concerns have eased in recent weeks following the sharp decline in Oil prices after the United States and Iran signed a 60-day Memorandum of Understanding (MoU) last month that partially reopened the Strait of Hormuz.
West Texas Intermediate (WTI) crude trades around $67 per barrel, its lowest level since February, retreating from a peak of $113 during the US-Iran war.
In the recent developments, indirect talks between the two sides concluded in Doha, with Qatari mediators reporting “positive progress,” although no significant breakthrough was announced.
Technical analysis: Bulls look to reclaim $4,100
XAU/USD keeps a bearish near-term bias as price holds well below the 200-day Simple Moving Average (SMA) and the 100-day SMA.
The metal is hovering just above the $4,100 level. A decisive break above it would ease the near-term bearish pressure. The Relative Strength Index (RSI) on the daily chart is at 42, below the neutral 50 mark and hinting at lingering downside momentum, while the Average Directional Index (ADX) is near 41, signaling a relatively strong prevailing trend.
On the topside, initial resistance appears at $4,100, followed by a stronger barrier at $4,300 before the longer-term cap from the 200-day SMA at $4,483 and the 100-day SMA at $4,643.
On the downside, immediate support is seen at $3,950, with a deeper bearish extension exposing the next key floor at $3,800, where buyers would be expected to show more interest if the current slide continues.
(The technical analysis of this story was written with the help of an AI tool.)
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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