Trade Idea: NFP This Friday and Gold
Gold set for worst month since September on Fed rate-hike prospects
Jan 31 (Reuters) - Gold prices fell on Monday and were set for the biggest monthly drop since September as markets anticipated higher U.S. interest rates, while a stronger dollar added to the pressure.
Spot gold was down 0.1% at $1,790.00 per ounce by 0840 GMT, taking its monthly drop to more than 2%.
U.S. gold futures were up 0.3% to $1,791.60.
"It's just that continuation of the real rates moving higher again and that's producing a more negative backdrop for gold, and I think the focus this week is going to be on (U.S.) non-farm payroll (data) on Friday," said Stephen Innes, managing partner at SPI Asset Management.
"Markets (are) only expecting 100,000-150,000 new jobs. So, if we get something higher, that will further enhance the possibility of a 50-basis-point hike in March."
The U.S. Federal Reserve plans to raise interest rates in March on the assumption the economy will largely steer clear of fallout from the Omicron coronavirus variant and keep growing at a healthy clip.
Although gold is considered a hedge against inflation, interest rate hikes would raise the opportunity cost of holding non-yielding bullion.
The dollar index hovered close to an 18-month high scaled on Friday, as traders eyed upcoming Australian, UK and European central bank meetings. A firmer greenback makes bullion more expensive for holders of other currencies.
Innes said the possibility of a rate hike from the Bank of England could slow the U.S. dollar from appreciating further, which may put a floor under the prices of safe-haven gold.
Trade Idea:
IF NFP results on Friday 4th of February will be higher than the consensus of 150-200K, this would mean USA economy's Labor market is doing exceptionally well and FED can use this to further support their decision to increase interest Rates in USA.
As Gold is inversely correlated to Interest Rates, increase in Interest Rates would Strengthen DXY and Weaken Gold prices.
Hence, on Above than expected 200k NFP figure, we can expect Gold prices to Drop as USD will go up.
Trade Example: Pending Sell Order at $1803 of 10 Units with Take Profit at $1743, Would result in up to $60,000 in Downside profit.
