Gold turns positive as dollar heads lower post NFP

Gold turned positive after initially dropping to its lowest level since August 8 in reaction to a weaker-than-expected US jobs report. The dollar’s initial gains evaporated as market participants made a more sober assessment of the jobs report and realised that the sharp rise in average hourly earnings may have been driven by a sizeable drop in low-paid and hurricane-hit jobs rather than an actual rise in earnings. As the dollar fell, buck-denominated precious metals went up in value. Their ascend took a boost by a rare fall in US stock indices, as some investors booked healthy profit ahead of the long weekend.

US employment fell by 33,000 last month as jobs in food services and drinking hubs were hit hard due to the impact of hurricanes Harvey and Irma. But it wasn’t all doom and gloom, as average hourly earnings grew more than expected, with the year-over-year rate climbing to 2.9% from 2.7% in the previous month. The economic calendar looks quite quiet for most part of next week, until Friday. There’s very little on the agenda on Monday, which is not a big surprise as there are holidays in Japan, US and Canada. Tuesday will see the release of official manufacturing data from the UK, France and Italy. The FOMC’s last meeting minutes will be published on Wednesday, followed US PPI and crude oil inventories a day later. Friday will likely be the most important day of the week in terms of data as we will have the latest US CPI and retail sales, among a couple of other macro numbers. In addition, there will be several speeches from various Fed members to look out for.

Thus, the dollar will remain in focus again next week. After Friday’s disappointing jobs data, the inflation figures in particular better be at least in line with the expectations, otherwise the dollar could ease further next week. As well as the prospects of weaker US dollar, gold may find additional support from ongoing situation in Catalonia region of Spain, where the Catalan leader is reportedly set to declare independence on Tuesday. The uncertainty could weigh on European stocks, although the impact could be short-lived as the Brexit vote proved last year. In any case, it is worth following the developments there closely.

As a result of the post-NFP rebound, gold was in the process of potentially forming bullish reversal formation on its daily chart. However, the day was not over when this report was written and there was still plenty of time left for the market to make up its mind. Despite gold’s rebound it is still far too early to suggest that we have seen the low. But it is in the process of forming a hammer daily candlestick formation off of its 61.8% Fibonacci retracement support level, which cannot be ignored. Still, a sustainable break back above the $1276/7 resistance level is still required if gold was to rise towards $1300 again.