Gold Jumps to 5-Week Highs on Soft Nonfarm Payrolls

Gold prices have posted strong gains in Friday’s North American session, climbing 1 percent. Currently, spot gold is trading at $1274.13 an ounce. On the release front, US employment numbers were a major disappointment. Nonfarm Payrolls plunged to 138 thousand, well off the forecast of 181 thousand. Wage growth softened, as Average Hourly Earnings edged lower to 0.2%, matching the forecast. The unemployment rate continues to fall, and came in at 4.3%, beating the estimate of 4.4%.

US employment releases often lead to movement in gold prices, as the health of the labor market is an important gauge of the strength of the US economy. When this data is softer than expected, investors often become jittery and dump dollar-denominated assets in favor of safe-haven assets, such as gold.  This was the case on Friday, as an unexpectedly soft Nonfarm Payrolls boosted gold above $1276 earlier on Friday, its highest level since late April. The markets had hoped that a sparkling ADP Nonfarm Payroll report would be repeated by the official report, but this was not to be, as Nonfarm Payrolls slid to 138 thousand in May, compared to 253 thousand a month earlier. Wage growth dropped from 0.3% to 0.2%, as wages and inflation remain stubbornly weak. Low levels of inflation have become a head-scratcher for Fed policy makers, as inflation remains stubbornly low despite a red-hot labor market. As for additional rate hikes in the second half of 2017, the markets are much more skeptical, as the heady predictions that the Fed could raise rates up to four times this year have faded considerably. Currently, a September rate increase is priced in at just 27 percent. With the next rate decision just less than two weeks away, we could see more volatility from gold, as the metal moves inversely with interest rates. Gold investors and traders will be glued to any comments from Fed policy makers, and any clues from the Fed about its rate plans could trigger swings in gold prices.

 

XAU/USD Fundamentals

Friday (June 2)

  • 8:30 US Average Hourly Earnings. Estimate 0.2%. Actual 0.2%
  • 8:30 US Nonfarm Employment Change. Estimate 181K. Actual 138K
  • 8:30 US Unemployment Rate. Estimate 4.4%. Actual 4.3%
  • 8:30 US Trade Balance. Estimate -45.5B. Actual -47.6B 

*All release times are EDT

*Key events are in bold

XAU/USD for Friday, June 2, 2017

XAU/USD June 2 at 9:50 EST

Open: 1265.89 High: 1276.27 Low: 1259.04 Close: 1274.13

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1199 1232 1260 1285 1307 1337
  • XAU/USD edged lower in the Asian session and showed little movement in European trade. The pair has posted strong gains early in the North American session
  • 1260 has some breathing room in support
  • 1285 is the next resistance line
  • Current range: 1260 to 1285

Further levels in both directions:

  • Below: 1260, 1232, 1199 and 1175
  • Above: 1285, 1307 and 1337

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged in the Friday session. Currently, long positions have a majority (64%). This is indicative of XAU/USD continuing to move to higher levels. 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.