Gold’s Outlook: Will Weak Labor Data Push It Higher?

The U.S. labor market has taken center stage as we approach the highly anticipated September 18 Federal Reserve meeting. With the STIR market currently pricing in four full rate cuts by year-end, there’s increasing speculation that one of the remaining three Fed meetings could deliver a substantial 50bps rate cut. As of now, the STIR market sees a 38% chance of this happening in September. This week’s economic releases, including weak Jolts data (with job openings dropping to the lowest levels of the year), a softer ADP report indicating a slowdown in private-sector hiring, and mixed jobless claims and ISM figures, have fueled these expectations. 

Gold has been on the rise, buoyed by weakening U.S. labor data and the subsequent decline in both the U.S. dollar and real yields. Gold thrives in such environments, as lower yields reduce the opportunity cost of holding non-yielding assets like gold, while a weaker dollar makes gold more affordable for international buyers. If today’s nonfarm payroll report misses expectations—coming in at 123K or lower with an unemployment rate of 4.4% or higher—this could set the stage for a significant rally in gold. With the market bracing for a 50bps rate cut, such a print would likely trigger a selloff in the DXY, boosting gold alongside EUR/USD and U.S. bond prices.

However, if the labor data surprises to the upside, with nonfarm payrolls exceeding 220K and wages rising sharply, the case for a 50bps rate cut will likely weaken. In such a scenario, we could see the DXY rise, triggering a pullback in gold prices, along with selling pressure in EUR/USD and U.S. bonds. Gold’s trajectory in the coming weeks will be closely tied to how the labor market data unfolds and whether it cements or diminishes expectations for aggressive rate cuts. 

All eyes are on today’s report as it will define the direction for gold and other key markets. Weak labor data could send gold surging toward new highs, while strong numbers could put a brake on its recent momentum.