US Releases Non-Farm Payroll Report

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Gold briefly surged around $1,950* late last week as US employment data revealed that unemployment was higher than experts had forecast. Indications about the strength or otherwise of the US economy can have a major impact on gold prices, particularly in the current environment of high interest rates and inflation.

The Federal Reserve aims to keep inflation at around 2% while keeping unemployment below 4%.

Increasing interest rates is, perhaps, the Federal Reserve’s most obvious tool for reducing inflation from its current level of 3.3%, however higher interest rates can also impact job creation as businesses face higher borrowing costs.

The nonfarm payroll data published by the US Bureau of Labor Statistics last week showed unemployment rise from 3.5% to 3.8%. This may make the Federal Reserve think twice about increasing interest rates at its next Federal Open Market Committee (FOMC) meeting on the 19th and 20th September.

Most analysts expect interest rates to come back down as inflation is brought under control, and investors will be monitoring data and comments by Federal Reserve officials carefully to try to gauge when that is likely to happen and position their portfolios accordingly.

Generally, falling interest rates are perceived as positive for gold as it makes some yield-bearing ‘safe-haven’ assets less attractive. Any sign that the interest rates may be about to fall may be positive for gold in the short term. Equally, any sign that high interest rates are beginning to damage the economy (rather than just slow inflation) could also boost gold. Conversely, signs that the Federal Reserve’s approach to inflation is broadly working could weigh on gold.

The next US interest rate decision is due on 20th September 2023.

The next publication of the US nonfarm payroll data will be on the 6th of October 2023.

*Price of gold mentioned here was checked at approximately 4.30PM on 7^th September 2023.

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