• It is anticipated that nonfarm payrolls in the US will rise by 185,000 in May.
• A poor job report will likely cause gold to react more strongly than positively.
• By the fourth hour following the release, the inverse link between the gold price and the NFP surprise had somewhat weakened.

How much of an effect has the US jobs data historically had on the price of gold? The study’s findings, which examined how the XAU/USD pair responded to the previous 35 NFP prints*, are presented in this article.

As the US Bureau of Labour Statistics (BLS) prepares to release the May jobs data on Friday, June 7, we provide our findings. Nonfarm Payrolls are predicted to grow by 185,000 after showing a weaker-than-forecast gain of 175,000 in April.

Methodology

Following the release, we plotted the gold price’s response to the NFP print at intervals of fifteen minutes, an hour, and four hours. Next, we examined how the gold price responded to the difference between the actual and predicted results of the NFP release.

Since the FXStreet Economic Calendar allocates a deviation point to each macroeconomic data release to indicate the magnitude of the divergence between the actual print and the market consensus, we used it to obtain data on deviation. For example, the August 2021 NFP data had a divergence of -1.49 and significantly undershot the market forecast of 750,000. However, September’s (2023) NFP print of 246,000, which came in below the market estimate of 170,000, was a welcome surprise, with the deviation for that specific release standing at 2.66. Both a stronger-than-expected NFP print and vice versa are viewed as positive developments for the USD.

In order to determine the time period at which gold had the strongest correlation with an NFP surprise, we finally computed the correlation coefficient (r). A significant positive correlation is seen as r advances towards 1, while a significant negative correlation is indicated when r approaches -1. An optimistic NFP reading should force gold to move down and indicate a negative connection, as gold is defined as XAU/USD.

Results

With the exception of the statistics for March 2023, there were 10 negative and 25 positive NFP surprises in the preceding 35 reports. The variance was, on average, 1.42 for good numbers and -0.7 for poor prints. If the NFP reading was below market expectations, gold rose $7.08 on average 15 minutes after the publication. Conversely, on favourable shocks, gold fell by $5.04 on average. This result implies that a weaker-than-expected report is likely to have a greater immediate impact on investors.

For the various time periods shown above, the correlation coefficients we computed are not near enough to -1 to be regarded as significant. Fifteen minutes after the release, the strongest negative association is observed, with an approximate r value of -0.53. After the release, an hour and four hours later, r increases to -0.51 and -0.49, respectively.

There may be a number of reasons why gold’s inverse relationship with NFP surprises is marginally weaker. After the initial reaction, gold reversed course a few hours after the NFP release on Friday as investors may have looked to book their profits towards the London fix.

More significantly, the labor force participation rate and average hourly earnings—two indicators of pay inflation—may be influencing the market’s response to the employment report’s underlying information. The headline NFP print and these additional statistics, together with the US Federal Reserve’s (Fed) continued data-dependent approach, may influence market pricing of the Fed’s upcoming policy move.

Furthermore, the significance of the newly disclosed data may be distorted by changes made to earlier findings. For example, in February 2024, the NFP increased by 275,000 and significantly outperformed the market estimate of 200,000. Nevertheless, the 335,000 increase in January was reduced down to 229,000, preventing the USD from gaining ground on the positive February print.