NFP miss boosts the case for further upside in gold

Following the large beat by the ADP employment report last Thursday night, Fridays Non-Farm Payrolls data was rapidly elevated to the status of the most important economic number since the pandemic due to its ability to provide a more concrete timetable for tapering.

Gold 4

However, hopes were dashed as the report showed the US economy added 559k jobs in May, below market expectations of 674k.

It also showed a decline in participation to 61.6%, a rise in earnings, and a long work week that did little to clear up the questions of labour supply factors raised after a weak jobs report in April.

This has removed some of the pressure from the Federal Reserve to move earlier to taper, although it doesn’t change the view that the Fed will soon begin the conversation around tapering, possibly as early as its upcoming meeting in mid-June.

Asset markets have opted to take the half glass full view that rates will stay lower for longer, perhaps also reassured that tapering isn’t tightening. After the Fed began to taper in December 2013 it wasn’t until two years later that the Fed raised rates in December 2015.

Buoyed by this, US yields eased lower towards range lows, taking the US dollar index, the DXY with it, and propelling gold over 1% higher, towards $1890. 

Technically, after consolidating its breakout of the top of the 11-month trend channel over the past three weeks, the expectation in the medium term is for gold to continue its rally towards the next upside target at $1960 and beyond that the $2075 high from August 2020.

For short-term traders, the preference is to lean against the trendline support currently at $1855 drawn from the 30th of March $1677 low , to enter longs in expectation of a retest and break of last week’s $1916 high, before the $1960 level mentioned above.

Aware that a daily close below $1855/40 would be a setback to the positive bias.


Source Tradingview. The figures stated areas of the 7th of June 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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