Tonight marks one of the most critical sessions for the gold market this week. At 8:30 PM (Malaysia time), the United States will release its September employment report, covering Nonfarm Payrolls, the Unemployment Rate, and Average Hourly Earnings.
Sentiment regarding gold has shifted slightly compared to earlier in the week. Softer US inflation data has dampened expectations for a Federal Reserve rate hike in October. However, the US Dollar and Treasury yields remain elevated, preventing gold from staging a robust recovery.
Tonight’s employment report could determine whether this sentiment continues to shift or reverts to a hawkish outlook.
NFP: The Key Data Point Tonight
Figures to watch:
Nonfarm Payrolls: 90K
Previous: 162K
Unemployment Rate: 4.1%
Previous: 4.1%
Average Hourly Earnings (MoM): 0.3%
Previous: 0.3%
Average Hourly Earnings (YoY): 3.2%
Previous: 3.1%
The market anticipates a significant slowdown in US job creation to around 90,000. However, the unemployment rate is expected to hold steady at 4.1%, while monthly wage growth is projected to remain at 0.3%.
This makes tonight's report particularly intriguing, as the NFP figure alone is insufficient to dictate gold's direction.
Traders need to consider three factors simultaneously:
The number of jobs created, the movement of the unemployment rate, and whether wage growth is accelerating or decelerating.
Why is NFP Crucial for Gold?
Simply put, the state of the labor market influences expectations regarding Federal Reserve interest rates.
If US job growth remains robust and wages rise, the market may once again view the US economy as strong enough for the Fed to maintain high interest rates.
The USD could gain support.
Treasury yields could rise. And gold could come under renewed pressure.
Conversely, if job numbers fall short of expectations, unemployment rises, and wage growth slows, the market might perceive the US economy as losing momentum.
In that scenario, expectations for a Fed rate hike could diminish.
The USD and yields could potentially fall, paving the way for a gold rebound.
This is why tonight's report is far more significant than just the NFP figure itself.
The Fed Faces Two Narratives
The Fed is currently in a rather complex situation.
Recent inflation data came in lower than expected, causing the market to scale back bets on an October rate hike. Reuters reported that the probability of an October hike dropped to around 26%, down from approximately 70% earlier in the week.
Yet, at the same time, Treasury yields remain high, and the labor market has shown no signs of collapse.
Thus, tonight's NFP data could determine which narrative dominates the market.
Is the economy still strong, requiring the Fed to remain hawkish?
Or
Is the economy slowing down, leaving the Fed without a compelling reason to raise rates?
Gold will react to the answer.
Geopolitics Remains a Risk
Beyond economic data, developments involving the United States and Iran remain factors to watch.
Tensions in the Middle East have helped keep oil prices elevated. Brent crude is currently hovering around US$102 per barrel, while developments regarding the conflict and energy supplies continue to exert pressure on global markets.
Typically, geopolitical tensions can boost demand for gold as a safe-haven asset.
However, there is a complication.
Excessively high oil prices can intensify inflationary pressure.
If the market perceives the conflict as a driver of rising energy prices, inflation concerns could resurface. This could potentially reinforce expectations that the Fed needs to maintain high interest rates. So tonight, geopolitics could support gold through safe-haven demand, yet simultaneously exert downward pressure on gold via inflation and interest rate channels.
Scenario 1: Strong NFP, Wages Remain High
If the NFP figure significantly exceeds 90K, the unemployment rate remains at 4.1% or lower, and wage growth is stronger than expected, the market may once again view the US economy as robust.
Expectations for Fed rate hikes could rise again.
The USD and Treasury yields have the potential to rise.
Implication: Bearish XAU/USD.
Scenario 2: Weak NFP, Rising Unemployment
If the NFP figure is well below 90K and the unemployment rate rises—especially if wage growth also slows—market sentiment could shift toward a narrative of US economic weakness.
Expectations for Fed rate hikes could diminish further.
The USD and Treasury yields have the potential to fall.
Implication: Bullish XAU/USD.
Scenario 3: Weak NFP but High Wages
This is the most interesting scenario.
If the job figures are disappointing yet Average Hourly Earnings remain high, the market may face uncertainty.
The Fed still grapples with inflation issues, even as the labor market slows down.
In this scenario, Gold could experience significant volatility as the market attempts to determine whether inflation or labor market weakness is of greater importance to the Fed.
For now, sentiment regarding gold remains mixed, though pressure from the USD and Treasury yields remains substantial.
Softer inflation data has dampened expectations for a Fed rate hike in October, yet the market awaits further evidence from the labor market before significantly adjusting its rate expectations.
This is why the NFP, Unemployment Rate, and Average Hourly Earnings are the three key figures to watch tonight.
If the employment report indicates that the US economy remains robust, pressure on gold could return.
If the report reveals a weakening labor market, gold could find room to extend its rebound.
And if the data is mixed, the initial post-NFP movement may not necessarily reflect the true trend, as the market will need to reassess the data's impact on the Fed, the USD, and Treasury yields.
Traders' main focus tonight: NFP → Unemployment → Wage Growth → Fed Rate Expectations → USD & Treasury Yield → Gold.
