U.S. August Non-Farm Payrolls Better than Expected and Unemployment Rate Unexpectedly Rises, Have Gold Formed Double Bottom?

Summary:

U.S. non-farm payrolls rose by 315,000 in August, slightly above expectations of 300,000. The unemployment rate rose by 0.2% to 3.7%, above expectations of 3.5%. The labor force participation rate rose by 0.3% to 62.4% but remained below pre-pandemic levels. Average hourly earnings rose by 0.3% month-on-month and by 5.2% year-on-year, in line with expectations.

BUY XAUUSD

Close Time

CLOSED

1703.00

Entry Price

1765.00

1690.00

4208.09 +10.18 +0.24%

15.7

Pips

Profit

1690.00

1704.57

Exit Price

1703.00

Entry Price

1765.00

Fundamentals

The U.S. economy added 315,000 jobs in August, slightly above the 300,000 widely forecast by the market. The unemployment rate rose by 0.2% to 3.7%, as household employment growth far outpaced the rebound in the labor force. The labor force participation rate rose marginally by 0.3 percentage points to 62.4%, unchanged from its previous cyclical high.

Average hourly earnings rose by 0.3% month-on-month, a slowdown from the 0.5% monthly increase in the previous month. Compared to the same period last year, wage growth was steady at 5.2%.

The U.S. Bureau of Labor Statistics also revised the previous two months' employment figures. The number of non-farm payrolls added in June was revised down from 398,000 to 293,000 and the number of non-farm payrolls added in July was revised down from 528,000 to 526,000. With these revisions, the June and July employment numbers combined were 107,000 less than previously reported.

The U.S. non-farm payrolls report for August beat expectations for the fifth consecutive month, demonstrating the resilience of the U.S. economy. Despite the slowdown, job growth remains strong. Payroll growth that exceeded expectations is something we have become accustomed to seeing. Since the start of the year, payroll growth in non-farm payrolls has significantly exceeded widespread expectations in seven of the last eight months.

The reversal in the unemployment rate should not be seen as negative as it is largely driven by an increase in labor supply. We have long said that the labor force participation rate has been underperforming and without more workers entering the labor market, job growth will soon begin to fade.

The recent underperformance of household employment relative to non-farm payrolls cannot be ignored. While the August household data did outpace the non-farm payrolls, the total increase in household data since April was only 274,000 compared to 1.9 million for non-farm payrolls. The underperformance appears to have been driven by a decline in illegal self-employment (which includes household employment but excludes non-farm) and an increase in multiple job holders, which are treated as separate jobs in the establishment survey but not in the household survey.

With the proportion of multiple job holders still below pre-pandemic levels, it appears that employment will continue to outstrip household employment in the short term. Overall, there were no major surprises in this non-farm payrolls report, with the only real surprise being that the unemployment rate took a historically backward turn.

Financial markets seemed positive about the report, with stocks rallying. The Fed is expected to raise interest rates by 75 basis points in September (from 74% before the release to 61% currently). Whether the Fed raises rates by 50 bps or 75 bps later this month, Powell made it clear in his Jackson Hole speech that the Federal Open Market Committee still has a lot of work to do and that policymakers are willing to sacrifice some slowing economic growth to achieve price stability.

XAUUSD: U.S. August Non-Farm Payrolls Better than Expected and Unemployment Rate Unexpectedly Rises, Have Gold Formed Double Bottom? _1

Technical Analysis

On Friday, gold prices gained some positive traction in the early Asian session and recovered most of the previous day's losses, and rose steadily to new (daily) highs during the European session. After the U.S. August non-farm payrolls report was released, gold prices continued to be revised upwards. The bulls are entering the 38.2% Fibonacci retracement level and a bullish close on Friday could lead to a further rise early next week, taking prices to the key resistance level of the previous sell-off at $1725.

With gold prices showing a sharp intraday rally, short pressure eased. And in terms of the wider structure, gold prices have also formed a double bottom pattern. The lows are expected to move away from the recent bottom in the subsequent process of structural repair and rising lows. It is recommended to buy the dips.

Trading Recommendations

Trading Direction: Long

Entry Price: 1703

Target Price: 1765

Stop Loss: 1690

Valid Until: 2022-09-16 20:00:00

Support: 1703, 1693

Resistance: 1725, 1730, 1742

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