Gold prices were up by four dollar an ounce, a gain of 0.30%, at the time of writing. The move higher in prices was mirrored by a similar decline in global stock market futures. The DAX index was down by 0.50%, while the S&P 500 future was down by 0.41%. The correlation between lower stock markets and higher gold prices will probably extend today, as traders take refuge in gold as reports for the US this week showed that the economy is slowing fast, in line with the rest of the world.
One bastion of strength in the US economy has been the labor market, despite the large swings in the leading economic indicators over the last few months. The unemployment rate has remained around the 3.7% level, so the weak ISM readings of this week, has increased interest around this month’s Non-farm payroll is therefore higher than usual.
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Economists anticipate that the US created 145,000 new jobs in September, and I anticipate the NFP would need to be much lower, around the 90,000 mark, to send gold prices higher in the short-term.
The reason for having this low bar, is that gold prices have already risen strongly without any correction from their lows of $1459 on Tuesday. The risk-reward ratio is therefore low, and investors would probably like to see a very weak NFP reading to buy more gold.
However, if the NFP outcome meets or exceeds expectations, gold prices might decline to $1480, and this week’s low of $1459, as it might assure investors that the US economy is holding up. It could should also send stock markets higher, which further lowers the demand for the gold.
The latest wage growth numbers will also be out, but they are less important in times of market turmoil. Economists project that annual wage growth increased by 3.2% in September. An outsized reading of 3.7% or higher is probably needed shift the focus away from the headline Non-farm payrolls reading.
Looking beyond the near term, the general price trend in gold remains neutral to bearish. As seen in the chart below, the price created a lower high on September 24 at $1536, and below this level the price might trader lower to $1480. However, if the prices trade above the September 24 high, traders might target the next high, the September 4 high of $1557.