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Gold Prices Eye CPI as Non-Farm Payrolls Miss, Rising Wages Complicate Fed Outlook

Gold Prices Eye CPI as Non-Farm Payrolls Miss, Rising Wages Complicate Fed Outlook

Daniel Dubrovsky, Strategist
Please add a description for the image.

Gold Fundamental Forecast - Bearish

  • Gold prices marked time this past week, but outlook remains bearish
  • Non-farm payrolls miss saw higher wages, which may bolster inflation
  • XAU/USD eyeing US CPI data as Fed may start tapering in November

Anti-fiat gold pricestraded relatively flat this past week, but the fundamental outlook for XAU/USD remains tilted to the downside. At the end of the day, September’s non-farm payrolls report probably does little to derail Federal Reserve tapering expectations. Investors are anticipating the central bank to begin the process at the November rate decision.

While the world’s largest economy only added 194k jobs last month, there are signs that the labor market is facing supply-side issues. The unemployment rate unexpectedly declined to 4.8% from 5.2%. Economists were anticipating a drop to 5.1%. This might have been partially explained by the decline in the labor force participation rate to 61.6% from 61.7% prior.

Ultimately, this appears to be complicating the Fed’s outlook. Average hourly earnings continued rising, climbing 4.6% y/y versus 4.3% prior. Softer-than-anticipated payroll gains could slow the pace of economic recovery, but higher wages may continue bolstering inflation. The latter might be what is keeping prospects of Fed tapering intact.

On the chart below, I have compared wages versus core inflation. In fact, the US will release the latest inflation figures this coming week. The headline and core rate are expected to clock in at 5.3% and 4.0% y/y respectively for September. Ongoing elevated readings above the Fed’s target may keep the door open to Fed lose policy unwinding.

US Average Hourly Earnings Vs. Core CPI

Gold Prices Eye CPI as Non-Farm Payrolls Miss, Rising Wages Complicate Fed Outlook

Chart Created in TradingView

Ultimately, these forces may bode ill for the non-interest-bearing yellow metal. A combination of rising Treasury yields, and a stronger US Dollar, may keep pressuring gold prices. Or at the very least, cap upside XAU/USD potential. On the chart below, gold can be seen tending to inversely follow bond yields and the direction of the US Dollar as of late.

Gold Vs. US Dollar and 10-Year Treasury Yield

Gold Prices Eye CPI as Non-Farm Payrolls Miss, Rising Wages Complicate Fed Outlook

Chart Created in TradingView

--- Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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

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