The fresh US NFP data released today has traders worried about growth concerns and potential policy mistakes. Gold traders wasted no time with their response, which has been highly bullish for the gold price. The question now is what the Fed will do next in light of the recent data, as it is clear that today's number is no longer just a data point, but rather confirms a data trend. If this is the case, what would be the magnitude of the next rate cut and what it would mean for gold traders?
Background
Today's US NFP data was the second biggest event of the week and undoubtedly the most important event of the month. Of course, we do have the Jackson Hole meeting, during which the Fed Chairman will grill on high flames, particularly in light of the recent labor data points.
Speaking seriously, I don't see anything positive in the data released today, except for the fact that the manufacturing portion of the data was marginally better than expected—despite the ISM manufacturing number suggesting that this portion of employment would also print at a lower rate.
Now, on the headline, two things matter the most, which are the US NFP number and the unemployment rate. The US NFP data came in at 114K, while the forecast was for 176K, and the previous number was 179K. So in terms of the US NFP data, we have a trend that clearly shows that things are falling apart. The unemployment rate was 4.3%, compared to 4.1% in the forecast and last month respectively. Therefore, it is evident that the current trend indicates a policy error.
Has the Fed Made a Policy Mistake?
Looking at today's number, gold traders are thinking the Fed has made another policy mistake, which no one wants to hear. Despite that, we will see a number of headlines saying this. Gold traders also believe that the Fed's policy error has sparked a growth scare, which could potentially benefit them. However, when the Fed Chairman speaks, he may argue that the 4.3% unemployment rate is still relatively low, and if you look at the average number of jobs created in the US over the past few months, it still exceeds 165K. He could also defy many expectations by asserting that the market has become accustomed to a high number in the US Non-Farm Productivity (NFP), a notion that would eventually become unsustainable as reality set in.
So what about gold now?
Well, looking at the gold price, one thing is very clear now: gold prices are on track to record solid growth this week. The price has started to flirt with its all-time high once again on the back of today’s US NFP number, and it is likely that we may see some retracement as the dust settles. However, the path of least resistance is currently heavily biased towards the upside. This implies that the gold price could potentially reach its peak, with the red line indicating the emerging resistance. The immediate support is near the 2427 price point; followed by that is the level of 2370.
