Gold extends recovery after weak Nonfarm Payrolls report

01 Nov 2024, 11:38 by Joaquin Monfort · FXStreet

Gold recovers after the steep sell-off on the previous day amid rising safe-haven flows.
Hopes of a ceasefire in the Middle East were dashed after Hezbollah launched a rocket attack, killing seven people in northern Israel.
Gold could be impacted by the release of US Nonfarm Payrolls data on Friday as it could change the outlook for interest rates.

Gold (XAU/USD) edges up by over half a percentage point on Friday as it recovers from the tumble it suffered on the previous day. The precious metal is trading in the $2,760s after the release of US Nonfarm Payrolls data showed a decline to only 12K in October, falling well below the 113K expected and the revised-down 223K of September.

The lower-than-expected increase in workers joining the economy will ring alarm bells for the Federal Reserve (Fed) regarding the state of the US labor market, and increases the probability it will reduce interest rates more aggresively in meetings to come. This, in turn, is positive for Gold as it lowers the opportunity cost of holding the non-interest paying asset, making it more attractive to investors.

Other data from the report showed the Unemployment Rate remained at 4.1% in October in line with expectations and the previous month; Average Hourly Earnings rose to 4.0% in line with expectations and higher than the revised-down 3.9% in September and hourly earnings on a month-over-month basis rose 0.4% versus 0.3% expected and a revised down 0.3% previously. Average Hours Worked also rose to 34.3, above expectations of 34.2, but the same as the upwardly-revised previous print.

Gold rebounds on safe-haven flows

Gold is also rebounding on the back of a revival in safe-haven demand after hopes of a ceasefire in the Middle East war were dashed by a Hezbollah rocket attack in northern Israel that killed seven people, making it the worst strike in months, according to the BBC. Overnight there was also an intensification of the bombing of Beirut by Israel resulting in over 55 deaths, according to Al Jazeera news. That, and the risk surrounding the US presidential election given how tight the race is, continue leavening demand for the yellow metal.

Technical Analysis: Gold recovers after pullback into former range

Gold is recovering after a pullback down into its former range between $2,708 and $2,758.

Overall, the precious metal remains in a steady uptrend on all time frames (short, medium and long), which, given the technical principle that “the trend is your friend,” tilts the odds in favor of more upside.

XAU/USD 4-hour Chart

That said, the decline from Wednesday’s peak has been steep, which could augur more downside to come.

The Relative Strength Index (RSI) momentum indicator in the 4-hour chart is also showing a bearish dip in momentum accompanied by the recent sell-off, with RSI falling substantially below the 50 mark for the first time since October 10.

A deeper pullback would find support at $2,708, the floor of the range. The overall uptrend, however, is likely to resume eventually.

A break above the $2,790 high would probably lead to a move up to resistance at $2,800 (whole number and psychological number) followed by $2,850.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

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