#Gold Technical Analysis#24K99 News. During the Asian market session on Friday (September 6th), spot gold was trading around $2516 per ounce, with a significant increase of over $20 in the price yesterday. On this trading day, investors will face the release of the US non-farm payroll report, which is expected to trigger a major market movement in the gold market. FXStreet analyst Eren Sengezer's latest article analyzes the response of gold prices to the non-farm payroll report.

Sengezer pointed out that the number of non-farm jobs in the United States is expected to increase by 0.16 million in August. Compared to a favorable non-farm employment data, the reaction of gold to disappointing employment data may be more intense.

The 'small non-farm' data released on Thursday performed poorly, casting a shadow over Friday's non-farm data.

The 'small non-farm' ADP employment report released by the United States on Thursday showed that the number of private sector employees increased by 0.099 million in August after seasonal adjustments, reaching a new low since January 2021. It fell far short of the economists' expected 0.144 million and also fell short of the revised 0.111 million in July.

The ADP data further confirmed the weakness of the labor market, leading to increased market bets on a 50 basis point rate cut by the Federal Reserve later this month.

At 20:30 Beijing time on Friday, investors will face the release of the US non-farm payroll report for August, which will provide the latest clues to the Fed's monetary policy outlook.

Authoritative media surveys show that the seasonally adjusted non-farm employment in the United States is expected to increase by 0.16 million in August, compared to an increase of 0.114 million in July. The US unemployment rate in August is expected to decline from 4.3% to 4.2%.

Han Tan, Chief Market Analyst at Exinity Group, stated: 'If the August unemployment rate remains unchanged at 4.3% (the highest level since 2021), with increased market bets on a substantial rate cut, gold prices will return to historical highs.'

According to CME's 'Fed Watch' tool, traders currently expect a 59% chance of a 25 basis point interest rate cut by the Fed this month, and a 41% chance of a 50 basis point cut.

In addition to changes in the overall non-farm employment population and unemployment rate, investors need to pay attention to average hourly wage data, which can provide important signals for inflation.

According to a survey by authoritative media, the average hourly wage rate in the United States in August is expected to increase by 0.3%, higher than the 0.2% increase in the previous month.

The year-on-year growth rate of average hourly wages in the United States in August is expected to increase from 3.6% in the previous month to 3.7%.

Investors will also focus on labor force participation rate data. According to a survey by the media, the labor force participation rate in the United States in August is expected to remain unchanged at 62.7%.

The latest article by Nick Timiraos, a reporter for The Wall Street Journal, known as the 'Fed Whisperer', states that the U.S. employment report for August, which is scheduled to be released on Friday, will play a bigger role than usual in determining the magnitude of the Fed's interest rate cut this month.

According to Timiraos, the focus of the debate at the Fed's September meeting is whether to start the interest rate cut with a 25 or 50 basis point reduction, in order to prevent an undesirable weakness in the job market. The August hiring and employment report will be crucial in making this decision.

Timiraos pointed out that a decent employment report could prompt officials to begin a series of possible interest rate cuts with a 25 basis point reduction. If hiring is weak or the unemployment rate rises, as it did in July, a larger rate cut will be imminent.

The following is the main content of Eren Sengezer's article:

Looking back in history, how much impact does the US employment report have on gold prices? In this article, we introduce the results of a study in which we analyzed the reaction of gold prices to the previous 35 non-farm data. (Note: We omitted the non-farm data in March 2023, which was released on the first Friday in April due to Easter and had a smaller fluctuation.)

On September 6th (Friday), when the US Bureau of Labor Statistics released the employment report for July, we presented our survey results. It is expected that the number of non-farm employment in August will increase by 0.16 million people, compared to a disappointing increase of 0.114 million in July.

Analysis method

We drew the gold price reaction within 15 minutes, 1 hour and 4 hours after the release of non-farm data. Then we compared the reaction of gold prices with the deviation between actual non-farm results and expected results.

We use the FXStreet economic calendar to calculate the deviation data, because it assigns a deviation point for each macroeconomic data release to show how much difference there is between actual data and market consensus. For example, in August 2021, the non-farm employment data was far below the market expected 0.75 million, and the deviation was -1.49. On the other hand, the non-farm employment data in September 2023 was 0.246 million, higher than the market expected 0.17 million, which is a positive surprise, and the deviation of the data is 2.66. Better-than-expected U.S. non-farm employment data is considered to be favorable to the U.S. dollar, and vice versa.

Finally, we calculated the correlation coefficient (r) to find out which time period has the strongest correlation between gold and non-farm surprises. When the r value tends to -1, it indicates a significant negative correlation, and when the r value tends to 1, it indicates a significant positive correlation. Since gold is priced in U.S. dollars, an optimistic non-farm report is expected to lead to a decline in gold prices and point to negative correlation.

(Image Source: FXStreet)

Analysis results

Of the 35 non-farm data releases prior to this, 10 pieces of data were below expectations, and 25 exceeded expectations. On average, the deviation in disappointing data was -0.77, while strong data was 1.4. 15 minutes after the data release, if the non-farm employment data is lower than the market consensus, the average gold price increases by $7.26. On the other hand, if the data is better than expected, the average gold price drops by $4.86. This finding suggests that investors' direct reaction to weaker-than-expected non-farm data may be more pronounced.

The correlation coefficients calculated for the different time frames mentioned above did not approach a level considered significant, reaching around -1. The strongest negative correlation occurred at 15 minutes and 1 hour after the release, with an r-value around -0.57, rising to around -0.5 after 4 hours.

(Image Source: FXStreet)

Several factors may have weakened the negative correlation between gold and non-farm payroll data. After the non-farm payroll data was released on Friday, investors may have sought profit-taking near the London fixing, causing the price of gold to reverse its initial reaction.

(Image Source: FXStreet)

More importantly, details of the non-farm payroll report, such as wage inflation measured by average hourly earnings and labor force participation rates, could affect market reactions. The Fed persists with its data-dependent approach, and the overall change in non-farm payroll, as well as these other pieces of data, could drive the market's pricing of the Fed's next policy action.

In addition, revisions to previous data could distort the impact of recently released data. For example, non-farm payroll employment in February 2024 grew by 0.275 million jobs, surpassing the market's expected 0.2 million. However, January's increase of 0.335 million was revised to 0.229 million, leading to the US dollar not benefiting from the optimistic data in February.

At 10:21 beijing time, spot gold was reported at $2516.05 per ounce.