Gold price outlook with the nonfarm payrolls data in focus

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed… read more.
on May 6, 2022
  • The range between $1,850 and $1,890 has been a crucial one for gold price since the beginning of the week.
  • A hawkish Fed and stagflation concerns are the two opposing forces influencing the metal's price movements.
  • Investors are also keen on the US nonfarm payrolls data later in the day.

Gold price has pulled back below $1,900 per ounce in Friday’s session after bouncing back past this crucial zone on Thursday,. Subsequently, it is back within the horizontal channel that has defined its movements throughout the week. As at 07:52 a.m GMT, it was at 1,875.25. In the short term, the range between $1,850 and $1,890 will be worth looking out for.

gold price
gold price

Fundamentals

As has been the case since the beginning of the week, the precious metal remains subject to two opposing forces. On the one hand, the hawkish Fed stance, which has resulted in a strong US dollar and higher Treasury yields, has curbed its upward potential. As at the time of writing, the dollar index was at $103.73.

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Earlier in the day, it hit its highest level in 20 years at $104.05. At its current level, it is set for its fifth consecutive week of gains. As is the case with other commodities, gold price tends to move inversely to the value of the US dollar. This is founded on the fact that a strong greenback makes the precious metal more expensive for buyers holding other currencies.

Besides, rising Treasury yields continue to increase the opportunity cost of holding the non-yielding bullion. The benchmark 10-year yields is at 3.07%, which is slightly below the 2018 high hit on Thursday at 3.11%.

While these factors have been weighing on gold price, stagflation risks are offering support to the metal. It is conventionally a hedge against inflation and safe haven during times of economic uncertainties.

Investors are now eyeing the nonfarm payrolls data scheduled for release later in Friday’s session. Analysts expect 391,000 jobs to have been added in April. In comparison, the previous month’s nonfarm payrolls reading was 431,000.

A higher than expected figure will likely exert pressure on gold price as investors forecast a more aggressive tightening of the monetary policy in coming months. Granted, the Fed Chair has indicated that FOMC is not actively considering a rate hike of 75 basis points. However, with inflation running at a four-decade high and the labor market strong, the market appears unconvinced by Powell’s remarks.

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