As the United States Bureau of Labor Statistics (BLS) prepares to release the December Nonfarm Payrolls (NFP) report on Friday, expectations are set for a rise of 154,000 jobs, following November’s stronger-than-expected increase of 227,000. A key question for investors is how the latest NFP figures will influence gold prices, particularly in light of historical trends.
Gold’s Historical Reaction to NFP Surprises
To gain insight into this dynamic, we analyzed the XAU/USD pair’s response to the past 35 NFP releases. Our study tracked gold price fluctuations across multiple time frames—15 minutes, one hour, and four hours—after each report. We compared these price changes to the deviation between the actual NFP result and market expectations.
To quantify the deviation, we used the FXStreet Economic Calendar, which assigns a deviation score to each economic release based on the gap between the actual figure and consensus forecasts. For example, the April 2024 NFP report missed the forecast of 243,000 by a significant margin, resulting in a deviation score of -1.28. Conversely, the September 2023 report of 246,000 jobs, well above the 170,000 forecast, saw a positive deviation score of 2.66. Typically, a stronger-than-expected NFP report is seen as USD-positive, while a weaker-than-expected result is seen as bearish for the dollar.
Additionally, we calculated the correlation coefficient (r) to determine the strength of gold’s relationship with NFP surprises. A correlation approaching -1 indicates a significant inverse relationship, while a positive correlation closer to 1 suggests gold moves in tandem with the NFP result. Since gold is denominated in USD (XAU/USD), a positive NFP surprise generally exerts downward pressure on gold prices, signaling a negative correlation.
Findings from the Study
Out of the previous 35 NFP releases (excluding data from March 2023), there were 9 negative surprises and 26 positive surprises. On average, disappointing NFP figures were associated with a deviation of -0.64, while strong NFP results showed a positive deviation of 1.47.
Negative surprises (NFP falling short of expectations): Gold prices rose by an average of $7.13, suggesting a stronger investor reaction to weaker-than-forecast job growth.
Positive surprises (NFP surpassing expectations): Gold prices declined by an average of $5.22, consistent with the typical inverse correlation between gold and the USD.
These findings suggest that gold tends to benefit more in the short term from weaker-than-expected NFP reports, likely due to investor sentiment and immediate risk-off behavior in response to disappointing data.
Gold’s Correlation with NFP Surprises Over Time
The correlation coefficients across the different time frames (15 minutes, one hour, and four hours) showed a modest negative relationship between gold and NFP surprises, with the strongest negative correlation appearing in the 15-minute and one-hour intervals. The correlation coefficient (r) for these time frames was around -0.57, indicating a moderate inverse relationship. After four hours, the correlation weakened slightly, rising to -0.46.
Several factors could explain the relatively weak inverse correlation between gold and NFP surprises. For instance, after the initial market reaction, some investors may look to book profits around the London fix, which could reverse the initial price movement.
The Bigger Picture: Additional Data and Fed Expectations
Beyond the headline NFP figure, other elements of the jobs report—such as wage inflation, measured by Average Hourly Earnings, and the Labor Force Participation Rate—could play a significant role in shaping market reactions. The Federal Reserve’s data-dependent approach means that these underlying metrics, in conjunction with the NFP report, are critical in influencing expectations for future monetary policy. Any surprise in wage growth, for example, could prompt market speculation about the Fed’s next move.
Additionally, revisions to previous NFP reports can also distort the impact of new data. For example, while the February 2024 NFP report showed an increase of 275,000 jobs, surpassing expectations of 200,000, the previous January figure was revised downward from 335,000 to 229,000, limiting the positive effect on the USD.
Conclusion
As the December NFP report approaches, gold traders will closely monitor the data for clues on the Federal Reserve’s next steps and the broader economic outlook. While past trends suggest a moderate negative correlation between NFP surprises and gold, market reactions could be influenced by a range of factors, including revisions to prior data and other economic indicators. Ultimately, the true impact of the report will depend on the specifics of the jobs data and broader market sentiment in the hours and days following its release.
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