A soft batch of US employment numbers flipped the market mood on Thursday, and Gold was the clear winner. At the time of writing, XAU/USD traded around $4,115, up nearly 2.10% on the day. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, slipped to about 100.78, its lowest in two weeks. A weaker Dollar makes Dollar-priced Gold cheaper for buyers, and that is exactly what pulled fresh buying back into the metal.
Live trading data put Gold near $4,128, roughly 1.47% above the prior close of $4,068. Over the past year the metal has swung between $3,264 and $5,586, and volume in the current session ran about 15 times the 20-day average.
Where the jobs report surprised
Data released by the US Bureau of Labor Statistics (BLS) showed the US economy added 57K jobs in June, well below the market's expectation of 110K. On top of that, May's payrolls were revised lower to 126K from the previously reported 172K, meaning the prior month was not as strong as first believed either.
Not everything was weak, though. 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. In other words, hiring slowed, but the pace of wage growth held firm.
Policy set to stay restrictive for longer
Even with the soft jobs print, monetary policy is expected to remain restrictive for a while, and the reason is the stance of Fed Chair Kevin Warsh. At the European Central Bank (ECB) Forum on Wednesday, he reiterated his commitment to restoring inflation to the 2% target. "We are in the price stability business," he said, while also acknowledging that "inflation risks have come down."
Inflation worries have in fact eased over recent weeks, largely because of the sharp drop in Oil prices. The United States and Iran signed a 60-day Memorandum of Understanding (MoU) last month that partially reopened the Strait of Hormuz, and that reopening pushed crude lower.
Crude's slide and the Doha talks
West Texas Intermediate (WTI) crude traded around $67 per barrel, its lowest level since February. The same grade had spiked to a peak of $113 during the US-Iran war, from which it has since retreated sharply.
In the latest developments, indirect talks between the two sides concluded in Doha, with Qatari mediators reporting "positive progress," although no significant breakthrough was announced.
The technical picture for Gold
On the charts, XAU/USD keeps a bearish near-term bias, as price holds well below both the 200-day Simple Moving Average (SMA) and the 100-day SMA. The metal is also capped by nearby horizontal resistance at $4,100, reinforcing the idea of a market still under corrective pressure rather than in a sustained recovery.
The Relative Strength Index (RSI) on the daily chart sits at 38, 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. Live readings show the daily RSI around 42 and ADX near 38, painting broadly the same picture.
On the topside, initial resistance appears at $4,100, followed by a stronger barrier at $4,300. Beyond that lies 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, and a deeper slide would expose the next key floor at $3,800, where buyers would be expected to show more interest.
What Nonfarm Payrolls actually are
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The NFP component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The figure can influence the Federal Reserve's decisions because it shows how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP means more people are employed, earning more and therefore probably spending more. A relatively low result, on the other hand, could mean people are struggling to find work. The Fed typically raises interest rates to combat high inflation triggered by low unemployment, and lowers them to stimulate a stagnant labor market.
How NFP moves the Dollar and Gold
Nonfarm Payrolls generally have a positive correlation with the US Dollar. When payrolls come out higher than expected the USD tends to rally, and it does the opposite when they are lower. NFP influences the Dollar through its impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Fed will be tighter, which supports the USD.
Payrolls, by contrast, are generally negatively correlated with the price of Gold. A higher-than-expected figure tends to depress the Gold price, and vice versa. Since a higher NFP lifts the USD, and like most major commodities Gold is priced in US Dollars, a stronger Dollar means it takes fewer Dollars to buy an ounce of Gold. Higher interest rates, which typically accompany higher NFPs, also make Gold less attractive as an investment compared with holding cash, where the money at least earns interest.
Still, NFP is only one component within a bigger jobs report and can be overshadowed by the others. At times, when NFP comes out higher than forecast but Average Weekly Earnings is lower than expected, the market ignores the potentially inflationary effect of the headline number and reads the fall in earnings as deflationary. The Participation Rate and Average Weekly Hours can also shape the market reaction, but only in rare events like the "Great Resignation" or the Global Financial Crisis.
How other markets moved
The British Pound traded 0.5% higher to near 1.3340 against the US Dollar during the European session on Thursday. Ahead of the June Nonfarm Payrolls data, due at 12:30 GMT, the Dollar underperformed its peers, and that weakness showed up as strength in GBP/USD. Similarly, EUR/USD gained traction and pushed past the 1.1450 mark, reaching a fresh multi-day peak amid a marked correction in the Dollar.
The cryptocurrency market broadly rose on Thursday too, reflecting improved risk sentiment after an extended stretch of selling pressure. Bitcoin climbed back above $60,000 after testing support at $58,000 earlier in the week. In the end, financial markets came to Sintra looking for clues about the Federal Reserve's next move, only to leave with confirmation that Kevin Warsh intends to make those clues much harder to find.
