Gold rose as the US Dollar slid after a weaker US Nonfarm Payrolls report, with XAU/USD trading around $4,120, up nearly 2.20% on the day. The US Dollar Index (DXY) fell to about 100.75, a two-week low, while speculation about possible action from Tokyo followed the JPY hitting a 40-year low earlier in the week. US data showed 57K jobs added in June versus 110K expected; May payrolls were revised to 129K from 172K. The Unemployment Rate eased to 4.2% from 4.3%, while Average Hourly Earnings rose 0.3% MoM and 3.5% YoY.
Rate expectations shifted after the release, with the CME FedWatch Tool putting the probability of a September rise at 51%, down from 63%. Oil also remained under pressure after a 60-day MoU between the US and Iran partially reopened the Strait of Hormuz, and WTI traded near $67 per barrel, its lowest since February, after peaking at $113 during the US-Iran war. On the charts, XAU/USD remains below the 200-day SMA and 100-day SMA, with RSI at 42 and ADX near 41; resistance is flagged at $4,100, $4,300, $4,483 and $4,643, while support sits at $3,950 and $3,800.
US Jobs Data Drives Market Shift
With the June jobs report coming in at only 57,000, far below the 110,000 expected, we see a clear signal that the US economy is slowing down. This has immediately cut the odds of a September Fed rate hike, putting significant pressure on the US dollar. Our focus in the coming weeks will be on assets that benefit from a weaker dollar and lower rate expectations.
We are positioning for continued strength in gold, which has already broken the key $4,100 level. We believe buying near-term call options on gold is the best way to gain exposure to further upside as the market continues to price out Fed tightening. A recent report from the World Gold Council noted a 12% increase in ETF inflows over the last week, confirming that other large investors are making a similar move.
Investment Strategy and Market Outlook
This jobs miss is historically significant, as a deviation of over 48% from consensus is rare and often signals a major shift in the economic cycle. Historically, after such a large NFP miss, gold has seen an average gain of 3-5% over the following month. We view the Fed’s tough talk on inflation as lagging behind the economic data, creating this trading opportunity for us.
While Fed officials maintain a hawkish stance, we are placing more weight on the hard data which now points to a cooling economy. We are also watching the decline in oil prices, with WTI crude holding below $70 a barrel, which should help lower upcoming inflation reports. A soft CPI reading next week would likely be the final nail in the coffin for any further rate hikes this year.
From a technical perspective, gold holding above $4,100 is the critical test for this new upward trend. The increased uncertainty means we expect volatility to pick up, so we are also considering strategies that profit from larger price swings. This includes looking at put options on the US Dollar Index (DXY) as it tests the 100.00 support level.
