NFP’s Effect on Gold Prices

February 7, 2022
by Leon Marshall,

Article Recap

While the relationship between gold and NFP is not clearly defined, in the short term, it could serve as an indicator and a trading opportunity.

NFP’s Effect on Gold Prices

Being one of the most advanced global economic powers, the US has considerable amounts of gold whose price can be noticeably affected by changes in the labour market as documented in NFP reports. While the relationship between gold and NFP is not clearly defined, in the short term, it could serve as an indicator and a trading opportunity.

NFP and the US macroeconomy

The non-farm payroll, often referred to as the NFP or the NFP report, is a monthly employment report by the US Bureau of Labor Statistics. It provides an analytical view over the employment situation in the USA, without taking into account non-profit organisations, government, private households and farm employees. Economic data from the NFP have a broad reach over price movement for common financial assets, such as the USD, gold, equities, treasuries, and others. 

By analysing the number of monthly new jobs made available in the country’s economy, various factors are made visible. Some of them include unemployment rate, average hourly earnings, hiring and dismissal, and other metrics. Wage gains are directly related to consumer health, which is crucial to the consumer-driven economy that the US has. Higher wages and employment rate signify a high level of consumer health which acts as a boost to the economy.

Such factors are of key importance to market sentiment, which is how investors perceive a market. Although it depends what the market is, commonly, these metrics remain viable factors for any kind of financial asset within the States.


Gold + NFP? Only if it’s for a short while 

Gold is an asset that has been around for many centuries. Its independency from any country’s regulation is the reason it grabs the attention of people looking to invest, as well as large-scale private or corporate investors. At the same time, this feature of gold makes it a potent financial instrument for trading. The US has an economy that spans widely and macroeconomic conditions can affect the price of gold, and so can expectations of the results that could temporarily bring down gold’s value.

As already mentioned, the relationship between the price of gold and job gains is not well-defined in the long term. Asa short-term indicator, however, employment figures can impact gold price. Typically, on the release day of the monthly NFP report, the prices of precious metals, including gold and silver, tend to go through a downslide as employment rate increases and have an upturn when the employment situation is not going as well.

The Federal Reserve has control over the interest rates of gold and traders react according to monetary policy implications. Bullish prices of gold can be seen when the US economy is growing. Even so, there are no metrics that always follow the same path – as an example, we can take the time when the NFP report was looking at a decline in employment rates in light of the global pandemic, yet gold prices continued to creep low

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Trading gold with the NFP report

Reading the NFP report is not mandatory in order to know where the numbers will point. Very often, the results are known before they are announced, so delving into it a bit more can be done simply by waiting until estimates reach a conclusion and alterations are made. More than the numbers themselves, trends are relevant in making use of the NFP’s effect on gold. A 12-month average trend is considered the standard for NFP trend analysis. Generally, you know the economy is doing well if the unemployment rate is low and wages are high. 

When it comes to gold, this applies through the lens of the USD. Positive trending of the NFP produces bullish behaviour in the USD, which is where forex come into place with the currency pairs where the USD is the primary currency in major pairs. Trading the currency market requires taking inflation into consideration – both expectations and concerns – as well as major news from Central banks and a combination between technical and fundamental analysis.

Nonetheless, the NFP report as a factor in gold price movement should be looked at from more than one perspective. In addition to employment rate and sector activity, average hourly wages also can be a sign for investors to reduce or increase stock market positions and hide beneath the umbrella of gold as a hedge against a temporary, or not so much, decline in the overall economy of the US.

The relationship between gold and NFP is not clear cut, but it is important to be aware of how much they influence each other. In doing so, traders can focus on major economic trends and develop strategies that make use of being ahead of the curve in the race for gold. 

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Trading on margin is high risk. 

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