Gold turns red as dollar recovers its post NFP drop

As the dollar rebounded after its initial negative reaction to the nonfarm payrolls report, buck-denominated gold turned negative on the week. But it remains to be seen whether there will be another last minute drama. Throughout much of this this week, the precious metal has been trading inside a tight range, supported by a pause in the dollar rally after the FOMC offered no new information and the appointment of a dovish Fed President was already priced in. In a week where equity markets in Germany and US hit new highs, the metal’s earlier performance, if not eye catching, had been respectable. That being said, I still remain cautious on gold until and unless it moves back above $1300 again. There is still the potential for a drop to the support trend of its bullish channel around the $1255 area before it decides on its next move.

But what gold does next will depend to a larger degree on the dollar. As mentioned, the greenback managed to bounce back on Friday after its initial falls on the back of a slightly disappointing jobs report. The highly optimistic consensus expectation of over 300,000 jobs added didn’t materials. Instead jobs grew by a still-good 261,000 last month. There was a net revision of 90,000 more jobs than previously reported for August and September. When taking into account the jobs data for the past three months, the trend of employment has remained solid. However, wage growth fell short of expectations in October and that was the biggest disappointment in the report. Average hourly earnings were flat against expectations for 0.2% growth, following a 0.5% increase the month before. The dollar’s recovery was later aided by the ISM Non-Manufacturing PMI, which came in better than expected at 60.1 versus 58.5. Additionally, factory orders rose 1.4% month-over-month, which was stronger than 1.3% expected.

Next week, the economic calendar is a lot lighter, so the dollar may remain in ranges. Apart from the impact of the dollar, gold could find direction from the stock markets. For example, it could come back in the event of an unexpected rise in risk aversion. Otherwise, I am struggling to think what could support the metal in the near term outlook, as the global equity markets are still holding up rather well.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.