Price of Gold Fundamental Daily Forecast – Mixed NFP Report Generates Mixed Reaction

Gold futures are testing their highest level since August 4 following the release of a mixed U.S. Non-Farm Payrolls report at 12:30 GMT. The report is also fueling a mixed reaction in the financial markets with Treasury yields surprisingly moving up, and the U.S. Dollar dropping sharply.

The weakness in the U.S. Dollar is providing the support by increasing foreign demand for the dollar-denominated asset, but the rise in Treasury yields is likely capping gains since it also increases the opportunity cost of holding gold.

At 13:49 GMT, December Comex gold futures are trading at $1827.50, up $15.80 or +0.87%. This is up from a low of $1810.90, and down from a high of $1832.90.

Mixed Non-Farm Payrolls Report

The economy added only 235,000 positions, the Labor Department reported Friday. Economists surveyed by Dow Jones had been looking for 720,000 new hires.

The unemployment rate dropped to 5.2% from 5.4%, in line with expectations.

Growth in average hourly earnings continues to come in strong with a 0.6% rise month over month, the employment report showed.

Despite the headline miss, U.S. Treasury yields are trading higher. This is likely because of the jump in average hourly earnings and the drop in the unemployment rate.

Treasury Yields Turn Higher after Poor August Jobs Report

U.S. Treasury yields rose on Friday as investors digested a disappointing August jobs report.

The yield on the benchmark 10-year Treasury note gained 2 basis points, trading near 1.319%. The yield on the 30-year bond rose 3 basis points to 1.939%.

The rise in yields was likely triggered by the jump in average hourly earnings which is inflationary.

US Dollar Extends its Losses

The U.S. Dollar is being pressured against a basket of currencies because the economy doesn’t appear to be as strong as previously anticipated. Meanwhile, inflation is soaring in the Euro Zone which is making the single-currency a more attractive asset.

Daily Forecast

Gold traders are having a difficult time with this report. The headline number is bullish for prices because it represents a weaker-than-expected labor market. Federal Reserve Chairman Jerome Powell has said that a strong labor market is the key to sustaining the economic recovery.

However, strong average hourly earnings growth and a drop in the unemployment rate are bearish for gold. Because they tend to indicate a strong underlying labor market.

What today’s report means in terms of tapering is that the Federal Reserve will likely pass on announcing tapering plans at its September 21-22 meeting. Instead, they’ll push it into November or December.

The report also shines a light on the problems being caused by the surge in coronavirus cases.

Traders are going to take the long U.S. holiday weekend to study the data and try to determine whether the report represents the start of a softening in the U.S. economy or just an aberration. Because of this, we’re likely to see a choppy, two-sided trade over the near-term with a slight bias to the upside.