The upcoming event that's catching the market's attention is the release of the July employment survey by the US Bureau of Labor Statistics, scheduled for Friday. We’ve been on this rollercoaster for months, but still, it’s worth asking – are you in for the next ride?
Friday morning, the US Bureau of Labor Statistics will unveil its report on July's nonfarm payrolls (NFP). The report's strength or weakness compared to the consensus predictions will significantly influence the short-term trajectories of the US dollar, gold, and the S&P 500.
The US dollar index experienced a decline on Tuesday, reversing its earlier gains. This shift was prompted by data revealing a drop in US job openings during July, just before the much-anticipated jobs report for August.
If job and earnings growth exceed expectations, particularly with an NFP figure surpassing 300 thousand, it could lead to a shift in interest rate expectations toward a more hawkish position. Traders might anticipate a quarter-point interest rate hike in the upcoming months due to concerns about higher inflation. While this could have a positive impact on the US dollar, it might adversely affect gold and the S&P 500.
Conversely, if employment gains turn out to be weak, with job figures falling below 150 thousand, a different scenario is likely. A disappointing NFP report could raise worries about the economy's state, resulting in a more dovish approach to the Federal Reserve's tightening strategy. As a result, the US dollar might retreat, whereas the S&P 500 and gold prices could experience significant gains.
So, what should we anticipate?
The forthcoming non-farm payrolls report for August is expected to reflect a decline in labor market conditions. The projected number of new jobs added is 170 thousand, down from July's 187 thousand.
This would mark the lowest monthly job growth in the US since February 2021. Such a situation could negatively impact the dollar and drive gold's value toward $2,000 per ounce. But here’s a trick. Recent history hasn't been favorable for gold's performance after US jobs reports. For instance, after the August 4 announcement of July's payroll growth at 187 thousand (versus a forecast of 200 thousand), the price of gold saw a consistent decline over two weeks. There was a slightly better performance after June's payroll release when gold rose from under $1,925 to $1,964.
In fact, throughout this year, gold has not surpassed the $2,000 mark except for the period from March to May. These were the months when job growth initially slowed, picked up, and then declined once again.
US economic resilience has sparked concerns that the Federal Reserve might implement further rate increases to bring inflation closer to its annual target of 2%. Federal Reserve Chair Jerome Powell acknowledged the possibility of additional rate hikes to curb inflation but also emphasized the need for cautious decision-making in upcoming meetings.
We can but wait. As we await developments, do our own research to step into trade with thoughtful decisions.
