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Gold Prices May Retreat as US Jobs Data Flags Sticky Wage Inflation

Gold Prices May Retreat as US Jobs Data Flags Sticky Wage Inflation

Ilya Spivak, Head Strategist, APAC

GOLD PRICE OUTLOOK:

  • Gold prices score largest rise in two months as Treasury yields decline
  • Pre-positioning ahead of April US payrolls data may have been at play
  • Upswing may unravel if sticky wage inflation spurs Fed tightening bets

Gold prices pushed sharply higher, posting the largest one-day rise in two months and reclaiming a foothold above the $1800/oz figure. The jump came as US Treasury yields dropped right at the Wall Street market open, boosting the relative appeal of the non-interest-bearing yellow metal.

A singular catalyst for the move is not readily apparent. However, that it came right at the opening bell for US bourses suggests that the move may have had more to do with portfolio rebalancing rather than discrete news-flow. The impetus for an adjustment might have been repositioning ahead of today’s US jobs report.

The much-anticipated data set is expected to show that the economy added 1 million nonfarm jobs in April, the most since August 2020. Meanwhile, the jobless rate is seen sliding to a 13-month low of 5.8 percent. However, it may be the wage inflation reading that proves to be most impactful.

GOLD UP BEFORE US JOBS DATA AS MARKETS EYE FED OUTLOOK IMPACT

Average hourly earnings are seen dropping 0.4 percent on-year, marking the first negative reading in at least 15 years. That seemingly shocking result almost certainly reflects base effects: wage growth surged to a record-high 8.2 percent in April 2020 amid labor shortages created by Covid-related lockdowns.

Nevertheless, traders may have reasoned that a drop in wage pressure – even only as a consequence of rebasing – might pull down overall inflation metrics. That might in turn help validate resistance by the Federal Reserve officials to consider starting the process of scaling back massive Covid-era stimulus.

STICKY WAGE INFLATION MAY FORCE GOLD PRICES TO RETREAT

Offering the Fed some cover to remain in ultra-dovish mode is understandably gold-supportive, but such a narrative may struggle for follow-through. PMI survey data points to capacity constrains that have led to labor shortages beyond re-hiring workers displaced by the pandemic. That may keep wages elevated.

As it stands, price growth data out of the US is outperforming baseline forecasts by the widest margin in 13 years, according to data from Citigroup. If that trend is on display on the wage inflation front when the employment report hits the wires, gold prices rapidly retreat.

GOLD TECHNICAL ANALYSIS

Gold prices broke higher from a choppy consolidation range, hitting near-term resistance at 1816.04. A daily close above this barrier opens the door for a test of the 1855.38-75.61 area. Alternatively, slipping back below the 1800/oz figure probably puts resistance-turned-support in the 1755.50-64.22 zone back into focus.

Gold price chart - daily

Gold price chart created using TradingView

GOLD TRADING RESOURCES

--- Written by Ilya Spivak, Head Strategist, APAC for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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