Review of Non-Farm Payrolls (NFP) Report: What It Means for Gold Prices

Tomorrow at 1.30pm GMT, the December edition of the Non-Farm Payrolls (NFP) report will be released to the markets. At the same time, the Average Hourly Earnings (monthly) will also be released.

The market consensus is for the average hourly earnings to be up by 0.3%, versus the consensus number of 0.2%. Employment change is expected to have gone up to +186K (consensus figure). Last month’s figure was +128K. Unemployment rate is expected to stay steady at 3.6%.

Gold Prices Up This Week on Risk-Off Sentiment

The NFP report is being released against the backdrop of disappointing ISM manufacturing and services PMI numbers, which have caused gold prices to tick up along with corresponding weakening of the US Dollar against the Euro and the British Pound. The breakdown of the reports point towards the US-China trade war as the underlying cause of the poor performances of many indices measured in the two surveys.

Furthermore, the situation on the US-China trade front was not helped as a slew of negative comments on both sides, notably the US President’s comments about inking a deal after the 2020 elections, dampened the mood in the markets.

So we have a Non-Farm Payrolls report coming on the back of poor economic conditions in manufacturing and the services industries, as well as a risk-off market sentiment.

Gold prices are higher this week as investors flocked to safe haven assets. The question is: will tomorrow’s NFP data reinforce this sentiment or will the market assume a risky sentiment tone?

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Trading Gold Price According to the NFP Data

Last month’s figure was +128K, and this month’s consensus figure is +186K. The market deviation to work with is 58K. As has been described earlier, it is important to ensure that there is no conflict among the numbers, since several market moving data are being released simultaneously.

For the NFP, we need to see opposing directions in the employment change and the unemployment rate.

  • A higher-than-expected employment change which exceeds +244K in the presence of an unemployment rate that is 3.6% or less is perceived to the good for the USD, prompting risk-on sentiment. Gold price is therefore expected to drop, with XAUUSD being sold off.
  • A lower-than expected employment change which is less than +70K at the same time that unemployment rate is 3.6% or more, is perceived as bad for the USD and this is expected to prompt risk-off sentiment, putting XAUUSD on bid.

I feel that the average hourly earnings may not have too much impact on gold prices, except the deviations in the NFP numbers are underwhelming.

Technical Levels for XAUUSD

Gold (XAUUSD) is in the resistance zone formed by the blue shaded line, and lies between 1475 and 1485. A break above this zone from an NFP which is bad for the USD targets 1518 and 1536 above it.

If price is firmly resisted and drops as a result of an NFP report which is good for the USD, a retest of 1448 and 1430 could be on the cards.More content