Effect of NFP Data on Gold Prices

NFP (Non-farm Payroll) data does not always affect the price of Gold. There are certain time preconditions when the price of Gold will be disturbed by the release of data from the United States.

Non-farm Payroll (NFP) data release is one of the most eagerly awaited moments for forex and Gold traders because the huge impact it has on the market can lead to price fluctuations and create trading opportunities with the potential for lucrative profits. However, is the influence of NFP data on the price of Gold actually positive, negative, or even unrelated? We will review it in this article.

Effect of General NFP Data

The Non-farm Payroll report from the United States shows the number of employees who receive payroll from various sectors, except civil servants, domestic workers, volunteers, freelancers, and agricultural sector workers. As such, the NFP report covers about 80 per cent of the total workers who contribute to US GDP. Therefore, statistical data released by the US Bureau of Labor Statistics (BLS) on the first Friday at 19.30 or 20.30 WIB every month is considered the most comprehensive to find out the condition of the US labour market.

The National Bureau of Economic Research (NBER), the US government agency on economic research, monitors it to determine whether the US economy is growing or slowing. The US central bank, the Federal Reserve, also counts it as one of the policy considerations, because the rapid growth in the number of jobs is considered to trigger an increase in inflation.

For forex traders, the moment of release of NFP data has historically been proven to trigger movements ranging from 50 to 250 pips in a very short time, especially for major currency pairs. However, what about the influence of this NFP data on the price of Gold which is usually represented by the XAU / USD symbol on an online trading platform?

Two Types of Influence of NFP Data on Gold Prices Usually, there are two scenarios to measure the effect of a fundamental economic data on the price of a financial asset, which is based on the short and long term. A large impact in the short term, not necessarily large in the long run. Likewise vice versa. Well, specifically to relate NFP data to Gold prices, in the long run, empirically it has proven to have no effect. You can monitor it in the following graph:

Effect of NFP Data on Gold Prices

It was seen that there was no clear relationship between NFP data and Gold prices over the long term, starting from January 1971 to January 2015. However, the relationship between them became evident in the short term.

A paper entitled “The Effects of Economic News on Commodity Prices” written by Shaun K Roache and Marco Rossi in 2009 proved that changes in NFP data affect Gold prices in the short term. If the NFP is released higher than expectations, it will have a positive effect on the US Dollar exchange rate, and the price of Gold tends to fall on the same day. Conversely, if the NFP data is bad, then the US Dollar exchange rate weakens and the price of Gold rises.

In addition, the SunshineProfits web [dot] com also noted that market participants also reacted to how the impact of NFP data shock on US government interest rates was very short (yield of 3-month Treasury Bonds). This phenomenon was evident in 2015 when almost all NFP data was considered crucial as a consideration for the Federal Reserve to decide whether the US economy was strong enough to face an interest rate increase or not.

The reason is, most financial market players buy gold when worrying about US economic conditions. In connection with this, the good NFP data confirms the strengthening of the economy which tends to be bearish for the price of Gold. Whereas if the NFP data is bad, it means that economic expansion slackens, and can have a bullish impact on the price of Gold.

What does it mean for forex traders? This means that the release of NFP data can be used to trade gold in a flash style like News Trading. However, if you intend to invest in gold in the long run, there is do n`t need to monitor this data

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