Gold Prices Correction Fueled by NFP- More Pain to Follow?

New York (Feb 3)  The losses come despite broader weakness in risk assets with all three major U.S. stock indices closing nearly 3% lower on the week. While gold prices may yet fall further, the decline should offer better opportunities to get back into the longer-term uptrend.

January U.S. Non-Farm Payrolls (NFP) topped estimates on Friday with a print of 200K with upward revisions to the previous months disappointing read further highlighting underlying strength in the labor markets. Most notable was a stronger-than-expected print on wage inflation figures with average hourly earnings climbing 2.9% y/y, up from an upwardly revised 2.7% y/y in December.

An improving inflationary outlook further increases the Federal Reserve’s flexibility with regards to normalizing / hiking interest rates at a faster pace. That said, today’s release is unlikely to move the needle for the current outlook for monetary policy and while markets are already pricing in a nearly 100% likelihood for a hike in March, the US Dollar did take some solace. Friday’s recovery was short-lived however and while the DXY may have further gains near-term, the broader risk remains weighted to the downside for now.

Next week traders will be eyeing the release of the January Consumer Price Index (CPI) and Retail Sales Figures. For gold, the focus will be on this recent pullback in price and while further losses are likely near-term, the broader outlook remains unchanged. 

DailyFX