The relationship between non-farm payroll (NFP) releases and gold prices can be complex, but here is a breakdown of the general trend and what might be happening in this scenario.
When the NFP data shows strong job growth, it can signal a robust economy, leading investors to expect that the Federal Reserve might continue or even accelerate interest rate hikes. Higher rates typically make gold less appealing because it does not yield interest, while other investments like US 10Year Bonds or savings accounts become more attractive with rising rates.
Additionally, a strong NFP report can boost confidence in the US dollar (effect in US Dollar Index prices), which often leads to gold prices falling, as gold is priced in dollars. So, if the NFP report shows solid job growth, it can drive both a stronger dollar and reduced demand for gold, leading to a decline in its price.
General trend
Strong NFP (more jobs added than expected)
Often leads to a decrease in gold prices. This is because a strong labor market can signal a healthy economy, potentially leading to higher demand for other assets and reduced demand for gold, decreasing its prices.
Weak NFP (fewer jobs added than expected)
Often leads to an increase in gold prices. This is because a weak labor market can signal economic uncertainty, potentially leading to increase the appeal of gold as a hedge against market volatility, increasing its market price.
Increased confidence in the US dollar
Gold is often priced in USD, so a stronger dollar makes gold more expensive for holders of other currencies, decreasing demand.
Decreased confidence in the US dollar
Investors may seek safe-haven assets like gold.
Expectations of higher interest rates:
Strong economic data can lead central banks to raise interest rates to combat inflation. Higher interest rates make holding gold less attractive as it does not provide a yield, unlike interest-bearing assets.
Expectations of lower interest rates or quantitative easing
These measures can increase inflation, making gold an attractive hedge.
My scenario
I already mentioned a “strong non-farm payroll released on Friday” followed by a “downtrend start in gold”. This aligns with the general trend.
The strong NFP data likely led to increased confidence in the US economy and potentially expectations of higher interest rates, putting downward pressure on gold prices.
Gold futures (February 25) trading strategies for the current market
Following the release of the Non-Farm Payroll data, Gold Futures for the February contract dropped to a low of $2686.90 range per ounce. However, after hitting a new low, the price rebounded sharply, climbing nearly 2% to reach a new high of $2735.00 range per ounce, demonstrating increased volatility and market reaction to the economic data.
