The US Jobs Data May Show a Drop in Gold Prices, Even if Payrolls Are Not Perfect

Gold prices marked time this week having roared higher in the wake of the Jackson Hole symposium.

The US Jobs Data May Show a Drop in Gold Prices, Even if Payrolls Are Not Perfect

The Fed Chair Powell's speech, which he said was separating the tapering of QE asset purchases and subsequent interest rate rises, was interpreted by traders as being 'dovish'.

It is telling that there has been no follow-through. The cautious attitude of Mr Powell was a cheering sign that traders were expecting a stronger commitment to policy normalization. Their reluctance this week to continue this narrative seems to be due to the fact that Powell's central bank head offered the most hawkish assessment for future policy since the Covid-19 epidemic.

The markets were astonished at the mention of QE being restructured a few months back. The fact that they now see the beginning of such a process in just four months is a testimony to the Fed's communication strategy. It seems to have succeeded in educating investors about the necessity to withdraw emergency support. This could encourage officials to increase their efforts, provided that the economy follows through.


This latter part will be the focus of August's US employment report. It is out today. The report is expected to show a slowdown in hiring with the 750k payrolls increase marking the lowest gain in four months. While the unemployment rate will drop, wage inflation is still at a remarkable 4 percent. This suggests that the headline number is not reflecting weakening demand but labor shortages.

This could lead to concerns about a wage-push inflationary spiral where companies pass higher labor costs on to consumers by raising prices and workers respond with still-higher wages. This could make what the Fed calls a "transitory rise in prices" into something more permanent, causing the Fed to veer off-course while it attempts to keep inflation at 2 percent.

If markets find appreciable risk in the probability of such a scenario following the jobs report, they may conclude that tapering QE may be made official as soon as this month's FOMC meeting. Gold prices are likely to suffer against such a backdrop as the US Dollar gains alongside Treasury bond yields, undermining the appeal of the non-interest-bearing, perennially anti-fiat yellow metal.


After a four-month-low, gold prices are now idling at 1834.14. This is after an impressive recovery in August. However, negative RSI divergence may indicate that upside momentum is ebbing which could set the stage for a reversal down.

Support at 1755.50 may be in danger if there is a daily close below support at 1787.37. A decline below the 1700.00 level to revisit the 2021 floor at1676.91 could be possible if that barrier is overcome. A push above the immediate resistance may bring about the next major upside barrier at 1870.75.