Gold rises as US ADP Nonfarm Employment massively underperforms

On Wednesday afternoon (GMT +2), the US ADP Nonfarm Employment data was released. The results showed that private U.S. payrolls fell by 301,000 in January 2022, the largest drop since April 2020, and far from the gain of 207,000 estimated by economists polled by Dow Jones. This is the first time in over a year that private payrolls have fallen.

The largest losses were recorded in the services section (-274k), while small companies cut the most jobs (-144k). Meanwhile, figures for December have been revised from the previously-reported 807k to 776k.

Said ADP chief economist Nela Richardson: “The labour market recovery took a step back at the start of 2022 due to the effect of the Omicron variant and its significant, though likely temporary, impact to job growth”.

Meanwhile, Kathy Jones, chief fixed-income strategist for Charles Schwab, has indicated that the ADP report may be a precursor to a weak US Nonfarm Payrolls (NFP) report on Friday, which currently has a forecast of 150k, down from last month’s 199k.

Post-market Effects

The surprise decline in the ADP reports has sent both the US dollar and US Treasury yields falling, with the latter’s 10-year note falling 3 basis points to a week’s low of 1.77% and the 30-year note falling 2 basis points to 2.104%.

Gold rose as a result, with spot gold gaining 0.4% to $1,808.48 per ounce while gold futures posted 0.5% higher at $1,810.30. In addition, “Continued short covering and perceived bargain buying” are helping the prices of precious metals, said Jim Wyckoff, a senior analyst at Kitco Metals.

However, analysts also suggest taking in the ADP Employment Change numbers with caution. DailyFX.com senior strategist Christopher Vecchio believes that the “biggest test” will come in mid-2022 after inflation begins to stabilise and markets absorb higher interest rates.

Mike Loewengart, managing director for investment strategy at Morgan Stanley’s E*Trade has also expressed the opinion that the loss in private payrolls might only be temporary. This is because, in addition to a strong earnings season, January’s loss was heavily driven by job cuts in the service sector – which tends to shed jobs after the holiday season.

All eyes are now on Friday’s upcoming US Nonfarm Payrolls data, which will be released this Friday, 4 February, at 15:30 (GMT+2). Investors are reminded to pay close attention to the NFP numbers, and as a friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.