Gold Price Forecast XAU/USD – Flat Ahead of NFP Report Despite Higher Yields, Firm US Dollar

Gold futures are trading nearly flat on Friday shortly before the release of a closely watched U.S. labor market report that could offer more clarity on the Federal Reserve’s interest rate-hike path. Bullion is surprisingly strong despite a slight rise in U.S. Treasury yields and a stronger U.S. Dollar.

At 12:00 GMT, February Comex gold futures are trading $1841.30, up $0.70 or +0.04%. On Thursday, the SPDR Gold Shares ETF (GLD) settled at $170.52, down $2.15 or -1.25%.

US Jobs Report Expected to Be Strong

The U.S. economy likely maintained a solid pace of job and wage growth in December, but rising borrowing costs as the Federal Reserve fights inflation could slow the market momentum significantly by mid-year, according to Reuter.

The Labor Department’s closely watched employment report on Friday is also expected to show the unemployment rate unchanged at 3.7% last month. Average Hourly Wages are also expected to show another gain, but at a slower pace than November.

The Details

The survey of business establishments is likely to show that nonfarm payrolls increased by 200,000 jobs last month after rising 263,000 in November, according to a Reuters poll of economists. That would be the smallest gain in two years.

Average hourly earnings are predicted to have risen 0.4% in December for an annual increase of 5%. In November, average hourly earnings rose 0.6%.

The report is due to be released at 13:30 GMT.

ISM Services PMI on Tap

December’s ISM Services PMI report is expected to drop from 56.5 to 55.0. Although the estimate is for a slightly weaker reading, it is still well above 50 which is the level that separates expansion from contraction.

Factory Orders are also on tap. It is expected to show a reading or -0.9%.

Both reports are due to be released at 15:00 GMT.

Daily Forecast

A stronger-than-expected jobs report, especially the average hourly earnings, is likely to keep the Fed on course for another 0.25% to 0.50% interest rate hike on Feb. 1. This could drive up Treasury yields and the U.S. Dollar, while encouraging investors to dump their long gold positions.

Ahead of the report on Thursday, Fed funds futures traders increased their bets that the Fed could hike rates by 50 basis point at its Jan. 31 – Feb. 1 policy meeting. It is now seen as a 48% chance, up from 31% on Wednesday morning, with a 25 basis points increase still seen as marginally more likely.