Gold’s Path Higher: Weak Labor Data and Key Economic Releases in Focus

The Federal Reserve is walking a tightrope as it approaches the September 18 meeting, with the focus now squarely on the labor market. Under its dual mandate of price stability and maximum employment, the Fed has made considerable progress on controlling inflation, but employment data remains the wild card. The STIR market is betting on four full rate cuts by the end of the year, and with only three Fed meetings left, there’s a growing chance that the September meeting could deliver a 50bps rate cut—currently seen as a 38% possibility.

This week’s economic indicators have provided mixed signals: Jolts job openings fell to the lowest levels of the year, while the ADP report showed a slowdown in private-sector hiring. At the same time, jobless claims have remained firm, and the ISM data was relatively solid, although its employment index did slip from 51.1 to 50.2. These trends paint a picture of a weakening labor market, increasing the likelihood of the Fed cutting rates aggressively in response.

Today’s nonfarm payroll data will be the critical piece in the puzzle. A weaker-than-expected print—123K or lower, with unemployment rising to 4.4%—would likely cement the case for a 50bps rate cut in September. Such a scenario could trigger a chain reaction in the markets, sending the U.S. dollar lower and boosting gold, EUR/USD, and U.S. bonds as traders position for further monetary easing. Given that the labor market is now the Fed’s main focus, weak employment data could be the tipping point that leads to aggressive rate cuts.

However, if the labor market shows more resilience, with nonfarm payrolls exceeding 220K and wage growth coming in strong, this could push back against the narrative of a 50bps cut. In such a case, expect the U.S. dollar to gain strength, leading to selling pressure in gold, EUR/USD, and bonds. Strong labor data would suggest that the Fed has more room to hold off on aggressive rate cuts, potentially slowing down the momentum behind the recent wave of dollar selling.

As the Fed balances its dual mandate, today’s jobs data could be pivotal. Traders will be closely watching for signs that either confirm or refute the current expectations of aggressive rate cuts. A weak labor market will likely push the Fed toward faster action, while strong data could reinforce the central bank’s cautious approach.