Gold (XAU) Price Forecast: Will Weak NFP Data Spark a Major Gold Rally?

Gold Prices Rise Ahead of NFP Report as Traders Weigh Rate Cut Odds

Gold prices are challenging one-week highs on Friday, supported by a weakening U.S. dollar and falling Treasury yields. Investors are increasingly pricing in the possibility of a substantial rate cut from the Federal Reserve after recent labor market data pointed to a potential slowdown. The focus now turns to the upcoming Non-Farm Payrolls (NFP) report, which could determine the size of the Fed’s next move.

At 11:05 GMT, XAU/USD is trading $2519.66, up $2.85 or +0.11%.

Weak U.S. Labor Market Supports Rate Cut Bets

Recent U.S. labor market data has fueled speculation about an aggressive rate cut. Private employers added the fewest workers in over three years in August, signaling a sharp slowdown in hiring. This follows a drop in U.S. job openings in July, further reinforcing concerns about the strength of the labor market. ADP’s employment data triggered a notable uptick in gold prices, as market participants viewed the labor market as being in a precarious state.

“The labor market is in a dire state, and there is a lot of concern about it,” noted Phillip Streible, chief market strategist at Blue Line Futures. Additional weekly jobless claims data also failed to improve sentiment, increasing the likelihood of a larger-than-expected rate cut.

Fed’s Rate Cut Expectations Depend on NFP Data

Currently, traders see a 59% chance of a 25-basis-point rate cut at the Fed’s next meeting, with a 41% probability of a more substantial 50-basis-point reduction, according to the CME FedWatch tool. The Fed has signaled that incoming economic data, particularly employment figures, will play a key role in determining the size of the cut.

San Francisco Fed President Mary Daly emphasized that the central bank must take action to protect the labor market, but the extent of the move hinges on Friday’s NFP report. Should unemployment rates remain elevated at 4.3%, gold could push towards record highs as markets price in a larger rate cut.

NFP Report: Scenarios to Watch for Gold Traders

The August NFP report is expected to show a gain of around 160,000 jobs. A result in line with expectations would likely favor a 25-basis-point rate cut, maintaining gold’s recent strength without significant volatility. However, if the jobs number comes in lower, potentially reflecting a more serious economic slowdown, the likelihood of a 50-basis-point cut increases, which would likely boost gold prices further as traders seek safe-haven assets.

Conversely, stronger-than-expected job growth could dampen the prospects of a large cut, leading to potential selling pressure on gold as investors reassess the Fed’s stance.

Market Forecast: Bullish Outlook for Gold Prices

Given the weakening U.S. labor market and rising expectations of a substantial Fed rate cut, the outlook for gold remains bullish. If Friday’s NFP report confirms labor market weakness, gold prices could continue to rise, potentially approaching all-time highs.

However, a stronger-than-expected report may limit gains, though gold is likely to remain supported as uncertainty around the Fed’s policy path persists. Traders should prepare for increased volatility in the short term, with gold poised to benefit from safe-haven demand.

Technical Analysis

There are three scenarios to consider.  If the NFP report is weak, look for a breakout over $2531.77. If the NFP report is strong, we could see a sharp break into the 50-day moving average at $2439.69. If the NFP report is neutral then look for a rangebound trade over the near-term with $2442.48 the bottom of the range and $2531.77 the top of the range.