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Gold Ahead of Nonfarm Payrolls

April 1, 2015 at 1:45 by Vladimir Vyun

Gold has been attempting to stage a rally on the back of the dollar’s weakness. While it had some success in that endeavor, the rally stalled on Friday, and the precious metal was moving lower since then. Can the metal regain its strength? What events may affect that? The answer to the latter question is rather simple: upcoming US nonfarm payrolls should be the major factor in the performance of gold. Answering the former question is a much more complicated task.

To understand the relationship between gold and economic data from the United States, one should recall that the precious metal has been very dependent on the US currency recently as they were usually trading in opposite directions. The greenback itself is linked to speculations about possible timing of an interest rate hike from the Federal Reserve. And the recent speech of Fed Chairwoman Janet Yellen last Friday had an important message – the timing of a rate lift-off will be very data-dependent. This means that the dollar will pay even more attention to economic indicators than usual, and so will do gold.

So what traders can expect from the employment report scheduled for this Friday? The previous reading was amazing, driving metals into the ground. While analysts do not expect the coming report to be as stellar as the previous one, they still anticipate very solid reading. This means that the outlook for gold is rather bearish. Yet gold bulls should not necessarily despair as there is always possibility that the report will surprise the market on the downside. Such an outcome should be very favorable for the precious metals.

Other economic data will likely be less impactful but it still may determine movement of gold ahead of the NFP. Several reports have been already released, and they were positive for the most part, sending metals and other commodities down. Among future important releases for the week will be the employment report from the Automatic Data Processing and manufacturing data from the Institute for Supply Management released on Wednesday while jobless claims and the trade balance report will be released on Thursday.

All in all, there is a bit of uncertainty regarding what the future holds for gold. Analysts’ forecasts reflect that. Trading NRG said in its outlook:

The modest recovery of gold and silver – if one could call it that – may not last long and is mostly driven by falling U.S. dollar, higher tensions in the Middle East – higher risk tends to help bullion – and falling interest rates. These conditions could keep gold and silver up and even see additional gains, but this week these gains could change course if the NFP comes up higher than anticipated. So the high volatility could reappear at the end of the week.

DailyFX released a neutral forecast for the metal.

If you have any questions and comments on gold today, use the form below to reply.

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