- Soft US jobs data has saved gold from further declines on Friday and XAU/USD is above $1800 again.
- CPI and Fed Chair Powell will be the main events to watch next week.
Spot gold prices (XAU/USD) have been on the front foot in recent trade on the back of a downbeat US labour market report for January, aided by softness in the US dollar; perhaps traders suspect that a soft start to the year for the labour market will encourage US monetary policymakers to keep their foot on the gas with regards to easy financial conditions for longer, an environment that might benefit gold (especially if real yields fall even lower and inflation expectations move higher).
Right now, gold is trading in the $1810s, having managed to reclaim the big figure during the European morning and then find further upside in wake of the data. Prices are up around 1% or just under $20 on the day. On the week, however, things have not been great; XAU/USD is set to close out the week with losses of around 2% or $35, having started Monday’s Asia Pacific session just under the $1850 mark. Soft US jobs data appears to have been a saving grace for gold; a strong number likely would have seen the precious metal test November lows in the $1760s.
Looking ahead for the precious metal, traders ought to continue watching events in FX, equity and bond markets; for most of the week, USD, stocks and bond yields all rallied in tandem, a bearish combination for gold. Should this continue into next week, Friday’s rebound could turn into nothing more than a dead cat bounce. US Consumer Price Inflation numbers for January and a speech from Fed Chair Jerome Powell next week will be the main calendar events to keep an eye on.
Downbeat US jobs report
In an immediate reaction to Friday’s US labour market report, spot silver saw a strength, though much of this was quickly pared back. As a recap; the US economy added 49K jobs in January, almost bang on consensus expectations according to Reuters, but a little below consensus according to Bloomberg. Somewhat disappointingly, however, most of these jobs added were in government employment (up 43K), not in the private sector (+6K). Surprisingly, the unemployment rate dropped to 6.3% from 6.7%, but this was in part driven by a drop in the participation rate to 61.4% from 61.5%. The U6 underemployment rate was 11.1%, down from 11.7%.
Meanwhile, Average Hourly Earnings continue to grow at a historically elevated pace, though these numbers are distorted by the disproportionately high level of job losses in lower-paying sectors of the economy (like hospitality and leisure) that have been more heavily impacted by the pandemic and lockdowns. All in all, not a great report, hence the minor strength seen in safe-haven precious metals markets; weaker data is better silver if 1) it takes some steam out of US dollar strength (which it appears to have done on Friday) and 2) it helps keep Fed policy ultra-accommodative for longer.
In terms of the big picture; does Friday’s labour market report change the outlook for US fiscal or monetary policy? Not really. A soft report will keep some pressure on Congress to act, which is arguably a positive for risk appetite. But they would be delivering more stimulus regardless. The Fed, meanwhile, are still a long way off from thinking about tightening.
XAU/USD key levels