Gold (XAU/USD) is finding fresh demand in Asia on Friday, pausing a sharp pullback from seven-week highs of $4,304 reached a day before. However, Gold bulls stay cautious ahead of the all-important US Nonfarm Payrolls (NFP) data release.
Gold: All eyes on US NFP amid Iran risks
Risk sentiment remains tepid early Friday, as renewed tensions over the Strait of Hormuz passage raised doubts about a potential US-Iran peace deal.
Iran’s semi-official Fars news agency reported on Thursday, citing a lawmaker, that an Iranian parliamentary committee is reviewing a preliminary bill that would bar US, Israeli and other “hostile” vessels from transiting the Strait of Hormuz. The draft bill would impose fines of up to 20% of a ship’s cargo value for violations of the proposed restrictions.
Oil prices rebounded firmly on Iran headlines, re-igniting inflation worries and September Federal Reserve (Fed) interest rate hike bets.
These Middle East concerns revived the US Dollar’s (USD) appeal as a haven, allowing the buck to stage a comeback, while triggering a sharp pullback in Gold from multi-week highs.
As of Friday’s trading, so far, the Greenback is holding overnight gains, capping the latest uptick in Gold. However, Gold remains on track to book its best week since January.
Gold traders now eagerly await the monthly US labor market report, including the critical NFP reading, for fresh hints on the Fed’s outlook on rates, which will likely have a significant impact on the USD and US Treasury bond yields.
The headline NFP is expected to rise by 80,000 in July after a 57,000 increase in June. Meanwhile, the Unemployment Rate is set to remain at 4.2% in the same period.
ADP slowdown reinforces TD Securities view of moderating US job gains
According to TD Securities, July ADP employment data “surprised to the downside, moderating to 44k (TD: 50k, cons: 65k),” underscoring a softer tone after a robust start to the year. The bank stresses that it does “not put much weight on ADP when it comes to m/m moves in NFP,” but notes that “the trend in the data is in line with what we are expecting.” Both the monthly and weekly ADP series “have moderated this summer after a strong start to the year,” and TD Securities expects “a similar trend is likely to occur with NFP job gains,” reinforcing their view of gradually cooling labour market momentum.
If the NFP reading shows a bigger-than-expected print, it would be good news for the US economy. That could ramp up September Fed rate hike bets and render negative for non-yielding assets such as Gold.
Conversely, an NFP disappointment could propel Gold bulls toward fresh multi-week highs, reviving US labor market concerns and the USD downtrend.
Beyond US payrolls, markets will closely monitor the situation in the Middle East, with the US-Iran peace talks in focus alongside Oil prices.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,260.68. The pair holds above the 21-day simple moving average (SMA) at $4,083.25 and the 50-day SMA at $4,151.23, keeping the near-term bias bullish as price consolidates comfortably over these trend supports. The Relative Strength Index (14) at 61.00 shows firm positive momentum without yet entering overbought territory, which suggests scope for further gains while the metal remains supported by these underlying averages.
On the topside, initial resistance emerges at the 100-day SMA at $4,389.72, ahead of a more substantial barrier at the 200-day SMA around $4,494.54. On the downside, immediate support is seen at the 50-day SMA near $4,151.23, with the 21-day SMA at $4,083.25 acting as a deeper floor; a daily close below these levels would hint at a loss of bullish traction and a broader consolidation phase.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation.
A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work.
The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower.
NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa.
Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold.
Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components.
At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary.
The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
