Gold prices (XAU/USD) have defied expectations by bouncing back in a V-shaped recovery, even in the face of a robust United States Nonfarm Payrolls (NFP) report for September. While the NFP report revealed significantly higher job creation figures than anticipated, gold’s resilience has surprised market participants.
Fresh nonfarm payrolls for September reached an impressive 336,000, surpassing investor forecasts of 170,000, and exceeding the creation of 187,000 jobs recorded in August. Additionally, despite expectations of a dip in labor demand following weak employment numbers from Automatic Data Processing (ADP), the unemployment rate remained steady at 3.8%, just slightly higher than the expected 3.7%.
On a monthly basis, Average Hourly Earnings maintained a steady growth rate of 0.2%, slightly below investor expectations of 0.3%. Annual wages also softened marginally to 4.2%, down from the estimated 4.3%. These resilient labor market conditions have created a hawkish tone for the Federal Reserve’s (Fed) forthcoming monetary policy decision in November.
The robust labor demand reflected in the NFP report is expected to intensify selling pressure in US Treasuries, reducing gold’s appeal. Moreover, expectations of another interest rate increase by the Fed in late 2023 are likely to discomfort policymakers and fuel consumer inflation expectations.
Despite encountering pressure earlier in the week, gold prices managed to rebound, notably driven by a soft US Services PMI report and a weaker ADP Employment report. ADP reported that the US private sector added 89,000 jobs in September, half the number recorded in August. While job growth in the leisure and hospitality sectors remained robust, layoffs were observed in the manufacturing and transportation sectors.
US Services PMI for September remained in line with estimates at 53.6, but the New Orders component significantly declined to 51.8, compared to the previous release of 57.5. As a proxy for the US service sector, which constitutes a significant portion of the US economy, a weaker demand outlook could diminish the appeal of the US Dollar.
The US Dollar Index (DXY) has corrected to near 106.30 from its 11-month high of 107.35. However, the broader outlook remains contingent on the impact of the forthcoming Nonfarm Payrolls data, to be published at 12:30 GMT.
The weekly jobless claims for the week ending September 29 remained relatively unchanged, with 207,000 individuals claiming jobless benefits for the first time, slightly up from the previous reading of 205,000 but below expectations of 210,000.
US Treasuries witnessed a significant sell-off during the week, fueled by expectations of sustained high interest rates amid a robust US economy and concerns over rising fiscal deficits. 10-year US Treasury yields hovered around 4.73%.
Chicago Federal Reserve Bank President Austan Goolsbee expressed doubts about further increases in Treasury yields and anticipated the US economy would maintain its course toward a 2% inflation goal.
Regarding the interest rate outlook, San Francisco Fed Bank President Mary Daly suggested that another rate hike may not be necessary if the labor market slows, inflation remains around 4%, and financial conditions remain tight.
Earlier, economists at ING had cautioned that a strong NFP report could reignite aggressive Dollar buying and potentially put markets back on a bearish track.
Technical Analysis: Gold Prices Find Support Near $1,810
Gold prices have attracted buying interest after dipping to approximately $1,810, despite the release of better-than-expected NFP data. The presence of a “death cross,” marked by the 50-day and 200-day Exponential Moving Averages (EMAs) at $1,905.00, suggests the potential for further downside. Momentum oscillators have entered extremely oversold territory, indicating possible market movements.