Gold Price Analysis: XAU/USD sees two-way chop as US jobs data beats expectations

Spot gold (XAU/USD) prices have seen a mixed reaction to the latest US labour market report, which was stronger than expected across most metrics. At present, spot prices are trading flat vs pre-data levels around the $1790 mark, having chopped between the $1784-$1797 levels in a two-way knee-jerk reaction to the data.

It does seem logical that in response to the data, the US dollar would start to see some broad-based strength (which could push the DXY beyond prior year-to-date highs in the 94.50 region) and that US real yields might also start to pick up if traders deem the latest report as increasing the likelihood of a hawkish Fed policy shift in early 2022. This could weigh on gold prices, in which case it might be worth keeping an eye on the 21 and 50-day moving averages in the $1780s just below Friday’s lows as the next area of support. A more extended hawkish move could see gold drop back towards Wednesday’s lows around $1760. But for now, spot gold traders seem content to keep the precious metal trading in the $1790 region.

US Jobs Report Review

The latest US labour market numbers released by the US Bureau of Labour Statistics for the month of October were strong on practically all fronts; firstly, the October non-farm payroll (NFP) number, which shows the number of jobs added to the US economy on the month, came in at 531K, above median economist forecasts for 425-450K. The September NFP number also saw a healthy upwards revision of more than 100K, rising to 312K from 194K. So in sum, that amounts to a beat on expectations for the headline NFP number of slightly around 200K. The headline beat was driven by the private sector adding a massive 600K jobs in October, way above expectations for 400K private sector jobs being added, which more than made up for a surprise drop in government employment on the month. Meanwhile, the unemployment rate fell more than expected to 4.6% from 4.8% in September, with the U6 underemployment rate dropping to 8.3% from 8.6% as well. The participation rate was flat at 61.6%, and average hourly earnings rose to 4.9% from 4.6% as market participants had been expected.

The latest strong US jobs numbers are in fitting with other strong data points that have already been released for the month of October, such as Markit and ISM’s PMI surveys, both of which remain at elevated levels and payroll company ADP’s estimate of employment change in October, which was released on Wednesday. Clearly then, the US economy has enjoyed a strong start to Q4 2021, which is not too surprising given the prevalence of the Covid-19 delta variant has diminished in recent weeks, after having held back economic activity and discouraged workers from returning to the labour force back in Q3. Most economists expect Q4 to be stronger than Q3 for this reason, though severe supply chain disruptions and high input costs are expected to continue to restrain economic activity. However, labour demand is expected to remain high, with the number of job vacancies currently well above the number of unemployed persons in the US.

In terms of what the above means for the Fed; the bank said that it could feasibly see full-employment being reached by mid-2022, which is in line with STIR market pricing for the bank to start lifting interest rates by about then. Friday’s labour market report is very much in fitting with this timeline of full-employment being reached by then, or perhaps even sooner. Q4 jobs data if strong, and if coupled with continued elevation of inflation readings well above the Fed’s 2.0% target, could set the stage for a hawkish FOMC shift in early 2022. As this risk rises, it is not surprising to see USD supported.