Gold prices set to rise in coming week after NFP data dampens FOMC bets

Gold Fundamental Forecast – Bullish

  • Gold traders bought the metal on Friday after the August US jobs report
  • Bullion prices set to extend Friday’s move as Treasury yields fall
  • Speeches by Federal Reserve Chairman Powell and Vice Chairman Brainard pose risks

Gold prices fell about 1% last week despite a weekend surge on Friday after the US Nonfarm Payrolls (NFP) report. The US economy added 315,000 jobs in August, beating the +298,000 Bloomberg consensus forecast. A speech by Federal Reserve Chairman Jerome Powell last Friday kicked the narrative out of the market’s pivot, with Powell saying the US central bank will continue to raise rates.

This sent gold-sensitive breakeven rates – the difference between nominal and inflation-linked Treasury yields – plummeting throughout the week. The US 1-year breakeven rate fell below 2% for the first time since 2020, but started to climb after the US jobs report crossed the wires. This increase has helped push up bullion prices.

Rates traders bought Treasuries after the jobs report showed some weakness in payroll data relative to expectations. That dampened bets on the Fed’s rate hike, although traders are still leaning towards a 75 basis point hike at the September FOMC meeting. Average hourly earnings rose 5.2% year-over-year, missing the expected figure of 5.3% year-on-year. That signaled some easing in the still-tight labor market, an encouraging sign for Fed policymakers.

Friday’s NFP report was the last before the September 21 FOMC meeting. The upcoming trading week offers potentially gold-bearing economic impressions, with the services sector ISM PMI set to cross the wires on Tuesday. Analysts see the gauge drop to 54.9 from 56.7. July’s trade balance, unemployment insurance claims and wholesale inventory data will round out the week.

President Powell is scheduled to speak Sept. 8 at the Cato Institute’s annual conference. Vice Chairman Lael Brainard’s comment on September 7 should also catch the market’s attention. The direction of gold could depend on the speech of the Fed. If Mr. Powell or Ms. Brainard gave rate traders a reason to withdraw more of their bets, it would likely allow XAU to rise. Meanwhile, a hawkish rebound in FOMC bets is unlikely to materialize on the jobs data. That said, gold prices could rise this week.

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter

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