The Implications of US Non-Farm Payroll Data on the Gold Price

The recent US Automatic Data Processing (ADP) report, showing a rise of 497,000 private sector jobs in June, raised expectations for the US non-farm payroll number. However, the official non-farm payrolls data revealed only 209,000 new hires,

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US Jobs Data Confusion: Impact on Gold Price and Fed Policy

falling short of forecasts and indicating a slightly different story about the US economy. The ADP number, which typically sets the tone for non-farm payroll data, has lost some of its correlation with the actual figures. The mixed messages from the non-farm payrolls, including an increase in the unemployment rate to 5.4%, have created confusion among investors and traders.

Gold price reaction to the data

Despite the weaker-than-expected non-farm payroll number, the gold price moved lower in response to US inflation data. This suggests that the data was not as weak as initial headlines indicated and does not warrant a significant change in the Federal Reserve's current monetary policy. However, it also implies that the Fed cannot solely rely on the ADP data and must approach its monetary policy decision cautiously, considering the rise in the unemployment rate.

Key takeaways

There are two important factors to consider regarding the US labor market. First, payrolls for each month this year have been revised lower, indicating weakness and potentially supporting the gold price as the US dollar index may ease off. Second, this month's non-farm payroll number was the first miss against expectations, signaling a long lag in the US labor market that could have negative implications.

Gold price outlook

Despite the mixed job numbers, the gold price remains under pressure. The lack of a clear picture of the job market, which the Fed closely monitors, contributes to the uncertainty. Traders will need more information, particularly from the upcoming consumer price index (CPI) data release on July 12. If the CPI shows a significant drop from the current 4% year-on-year level, it could ease pressure on the Fed. However, the gold price is supported at $1,900 per ounce, and a potential inflation reading in the 3-handle range could drive the price towards resistance at $1,950. The main resistance level remains at $2,000 to $2,049, requiring substantial improvement in inflation data to deter further rate hikes. On the downside, sticky inflation could lead to a downward move, potentially pushing the gold price towards support levels of $1,800 to $1,841.

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