On Friday (August 2nd), spot gold maintained its intraday rebound trend in the Asian market, with the current gold price around $2458 per ounce. On this trading day, investors will receive the US non farm payroll report, which is expected to trigger a major market trend in the gold market. Analyst Eren Sengezer's latest article analyzes the response of gold prices to non farm payroll reports.

The "small non farm" and initial jobless claims data released earlier this week performed worse than expected, casting a shadow over Friday's non farm data.

Sengezer pointed out that the non farm payroll in the United States is expected to increase by 175000 people in July. Compared to an optimistic non farm payroll data, gold's response to disappointing employment data may be stronger.

According to data released by the US Department of Labor on Thursday, the number of initial jobless claims increased by 14000 to 249000 for the week ending July 27th. The median forecast of surveyed economists is 236000 people. The increase in initial jobless claims indicates a slowdown in the labor market.

In addition, on Wednesday, the ADP employment report, known as the "small non farm payroll", showed that the number of private sector employees in July increased by 122000 after seasonal adjustment, a growth rate lower than the 150000 expected by economists.

At 20:30 Beijing time on Friday, investors will receive the US July non farm payroll report, which will provide the latest clues for the market to further assess the state of the US labor market and the outlook for the Federal Reserve's monetary policy.

According to authoritative media surveys, the seasonally adjusted non farm payroll in the United States is expected to increase by 175000 in July, compared to an increase of 206000 in June. The unemployment rate in the United States is expected to remain flat at 4.1% in July.

In addition to overall changes in non farm employment and unemployment rates, investors need to focus on average hourly wage data, which can provide important signals on inflation.

The year-on-year increase in average hourly wages in the United States in July is expected to decrease from 3.9% in the previous month to 3.7%. According to a survey by authoritative media, the average monthly hourly wage rate in the United States is expected to increase by 0.3% in July, the same as the previous month.

Investors will also pay attention to labor force participation rate data. According to media surveys, the labor force participation rate in the United States is expected to remain unchanged at 62.6% in July.

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

How much impact does the US employment report have on gold prices historically? In this article, we present the results of a study in which we analyzed the response of gold prices to the previous 35 non farm payroll data. (Note: We have omitted the non farm payroll data for March 2023, which was released on the first Friday of April and fluctuated less due to Easter.)

We presented our survey results on the occasion of the release of the July employment report by the US Bureau of Labor Statistics on Friday, August 2nd. It is expected that the number of non farm employment will increase by 175000 in July, after an increase of 206000 in June (slightly stronger than previously expected).

Analysis method

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

We use an economic calendar to calculate bias data because it assigns a bias point to each macroeconomic data release to show how much difference there is between actual data and market consensus. For example, the non farm employment data for August 2021 was far below the market expectation of 750000, with a deviation of -1.49. On the other hand, the non farm employment data for September 2023 was 246000, higher than the market expectation of 170000, which is a positive surprise with a deviation of 2.66. The better than expected non farm payroll data in the United States is seen as favorable for the US dollar, and vice versa.

Finally, we calculate the correlation coefficient (r) to identify which time period has the strongest correlation between gold and non farm unexpected situations. 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. Due to the fact that gold is priced in US dollars, an optimistic non farm report should lead to a decline in gold prices and point towards negative correlation.

Analysis results

Out of the previous 35 releases of non farm payroll data, 9 fell short of expectations and 26 exceeded expectations. On average, in terms of disappointing data, the deviation is -0.74, while the strong data is 1.4. After 15 minutes of data release, if the non farm employment data falls below market consensus, the average gold price will rise by $6.45. On the other hand, if the data is better than expected, the average price of gold will drop by $5.43. This discovery suggests that investors may have a stronger direct response to weaker than expected non farm payroll data.

The correlation coefficients we calculated for the different time frames mentioned above did not approach the level considered significant -1. The strongest negative correlation occurred 15 minutes after publication, with r values of -0.52. After 1 hour and 4 hours of publication, r values increased to -0.51 and -0.48, respectively.

There are several factors that may play a role in weakening the unexpected negative correlation between gold and non farm employment data. A few hours after the release of non farm payroll data on Friday, investors may seek profit taking near the London fixed price, leading to a reversal in gold prices after their initial reaction.

More importantly, the potential details of the non farm employment report, such as wage inflation measured by average hourly wage and labor force participation rate, may have an impact on market reactions. The Federal Reserve insists on its data dependent approach, and overall non farm employment change data, along with these other data, may drive market pricing for the Fed's next policy actions.

In addition, the correction of previous data may distort the impact of recently released data. For example, in February 2024, the number of non farm jobs increased by 275000, exceeding the market expectation of 200000. However, the increase of 335000 in January has been revised to 229000, which has prevented the US dollar from benefiting from the optimistic data in February.