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Gold Outlook: How Would Gold React to a Negative US Jobs (NFP) Release?

Gold Outlook: How Would Gold React to a Negative US Jobs (NFP) Release?

Nick Cawley, Strategist

Gold Price (XAU/USD), Chart, and Analysis

  • US private employment (ADP) fell for the first time in a year.
  • The Fed will look through one negative NFP report.

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Tomorrow’s US Labor Report (NFP) is now expected to show that the US jobs market contracted in January due to the Omicron spread and subsequent lockdown. Wednesday’s private payroll report (ADP) surprised some in the market and turned negative for the first time in a year with jobs losses led by the service sector. This is now expected to be the case in Friday’s NFP release although official market estimates are still suggesting jobs market growth in the first month of 2022. While one month’s worth of jobs data will not sway the Federal Reserve from changing its stance of hiking rates and kickstarting quantitative tightening, it will be noted and traders should be aware of any official Fed speak post-release. Any hint of slowing down, or reducing the number of rate hikes will give the precious metal a boost, in the short-term at least.

Market professionals will have factored in the Omicron effect into market prices but a contracting US jobs market will likely make front-page headlines in the weekend press. With gold’s fortune still tied to the US dollar and underlying US interest rates, anything that can move these markets, however short the timeframe, will need to be closely followed.

The recent sharp sell-off in gold has returned the precious metal back into a well-defined trading between $1,763/oz. and $1,837/oz. with any breakouts from this range pulled back quickly. Volatility remains low – using the Average True Range indicator – while gold is neither oversold or overbought. Maybe a burst of volatility post-NFP on Friday will give traders an opportunity within the previously mentioned range.

Gold (XAU/USD) Daily Price February 3, 2022

Gold Outlook: How Would Gold React to a Negative US Jobs (NFP) Release?

Retail trader data show 81.50% of traders are net-long with the ratio of traders long to short at 4.41 to 1. The number of traders net-long is 4.35% lower than yesterday and 14.74% higher from last week, while the number of traders net-short is 7.34% higher than yesterday and 14.64% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed Gold trading bias.

What is your view on Gold – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

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