Vinicius Barbosa
Gold had picked up pace in a 4-day price rally last week from January 29 to February 1. However, an economic indicator on February 2 slowed it down, bleeding for a full retracement over its previous daily gains.
Notably, Gold started trading at $2,017.92 per ounce on January 29, closing February 1 at $2,054.55. This 1.81% gain in four days raised investors’ interest, looking for the fifth positive day, which never happened.
The leading commodity closed the week at $2,039.58, fully retracing its previous daily gains. Moreover, Gold traded as low as $2,027.94 on February 2, following positive data from Nonfarm Payrolls in January.
In particular, there were 353,000 new jobs in the United States in January. This was nearly two times higher than the forecasted 187,000 nonfarm payrolls. Thus, it shows a strong growing economy despite the challenges which may influence the financial market.
Nonfarm Payrolls and their impacts on financial markets
Corporate Finance Institute explained Nonfarm Payrolls:
“Non-farm payroll represents the change in jobs in the economy over the previous month that does not include farm workers, private household employees, or non-profits. The statistic is released by the U.S. Department of Labor and is a key indicator of the labor market.”
– Corporate Finance Institute
Additionally, Investopedia further explained its impacts on financial markets:
“The report contains data and statistics regarding the employment situation in the United States, which can identify trends in economic growth, inflation, housing starts, and gross domestic product, all of which affect the movement of financial markets.
(…) [Nonfarm Payrolls] contains insights into the labor force that directly impacts the economy, the stock market, the value of the U.S. dollar, the value of Treasuries, and the price of gold.”
– Investopedia
Interestingly, the Federal Reserve has been using Nonfarm Payrolls (or jobs) as a leading indicator for its interest rate decisions. On that, the U.S. central bank surprised the market, hinting at a “non-cut” of the rates in March. An interest rate cut was highly expected and forecasted by most financial institutions and traders until January 31’s meeting.
In conclusion, a strong labor market weakens speculative products such as gold, stocks, and cryptocurrencies. Essentially, it encourages the Federal Reserve to keep high interest rates for longer, which may weaken the economy in the future.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
