How to Trade Gold during Non-Farm Payroll | Trading Series

How to Trade Gold during Non-Farm Payroll | Trading Series

Trading the Non-Farm Payroll (NFP) report with XAUUSD (Gold) is a popular strategy among traders due to the significant volatility the report can introduce to the market.

The NFP is a key economic indicator that measures the number of new jobs created in the U.S. during the previous month, excluding the agricultural sector.

Since Gold is priced in U.S. dollars, the report's impact on the USD directly affects the price of Gold.

Here's a breakdown of how the NFP report affects XAUUSD and some common trading strategies, along with important risk management considerations.

How NFP Affects XAUUSD

The NFP report is a primary driver of the U.S. dollar's value. A strong NFP report (meaning more jobs were created than expected) generally leads to a stronger U.S. dollar. This is because a robust job market suggests a healthy economy, which could encourage the Federal Reserve to raise interest rates or maintain a hawkish stance. A stronger dollar makes Gold more expensive for holders of other currencies, leading to a decrease in its price.

Conversely, a weak NFP report (fewer jobs created than expected) tends to weaken the U.S. dollar. This can lead to a "flight to safety" as investors become more risk-averse, increasing demand for traditional safe-haven assets like Gold. Additionally, a weaker dollar makes Gold cheaper, further boosting its price.

However, it's not just the headline number that matters. Traders also analyze other components of the report, such as:

• Unemployment Rate: A declining unemployment rate is generally positive for the USD.

• Average Hourly Earnings: Strong wage growth can lead to inflation concerns, which may cause the Fed to be more aggressive with interest rate hikes, further strengthening the USD.

• Revisions to Previous Months: Revisions to prior NFP numbers can also influence market sentiment.

Trading Strategies for NFP with XAUUSD

Trading the NFP can be highly risky due to the extreme volatility. Many experienced traders advise against trading during the initial minutes of the release and instead suggest waiting for the market to settle. Here are some strategies that traders use:

1. Breakout Strategy

• Before the Release: Identify a key support and resistance level on a shorter timeframe (e.g., a 15-minute chart) in the hours leading up to the NFP release. The market often consolidates in a tight range before the news.

• After the Release: Place buy and sell stop orders above and below this range. When the NFP report is released, the price will likely "break out" in one direction.

• Execution: The stop order in the direction of the breakout will be triggered, and you can then cancel the other order. Set a stop loss on the opposite side of the breakout range to manage risk.

2. The "Fade the Spike" Strategy

• Initial Reaction: The initial market reaction to the NFP report can sometimes be an overreaction or a "fake-out." The price might spike sharply in one direction, only to quickly reverse.

• Patience is Key: With this strategy, you wait for this initial spike to happen and then place a trade in the opposite direction, anticipating a correction.

• Confirmation: Wait for a clear reversal signal, such as a candlestick pattern or a change in momentum on a shorter timeframe, before entering the trade.

3. Trading the "Drift"

• Wait and See: This is a more conservative approach. Instead of trading the initial volatile moves, you wait for the market to digest the NFP data and for a more sustainable trend to emerge, usually a few hours after the release.

• Confirmation: Analyze the headline numbers, unemployment rate, and average hourly earnings, and see how the market is reacting. This will give you a better sense of the overall market sentiment and the potential long-term direction for XAUUSD.

• Execution: Enter a trade based on the new trend, using technical analysis to identify entry and exit points.

Risk Management is Crucial

Trading the NFP report is not for beginners and requires a robust risk management plan. Here are some key considerations:

• Position Sizing: Due to the high volatility, it's essential to reduce your position size. A smaller position can help you withstand larger price swings and avoid getting stopped out prematurely.

• Wider Stops: The rapid and often unpredictable price action means that your stop-loss orders should be wider than usual to account for the increased volatility. However, don't make them so wide that your risk-reward ratio is compromised.

• Avoid Gaps: Market gaps can occur, where the price jumps from one level to another, completely skipping your stop-loss order. This can lead to a larger loss than anticipated.

• Practice on a Demo Account: Before attempting to trade the NFP with real money, it is highly recommended to practice your strategy on a demo account. This will help you understand the market's behavior and test your risk management approach without financial risk.

July 2025 NFP News

Link:

https://www.forexfactory.com/news/1354274-the-us-employment-situation-july-2025

As of the latest reports, the U.S. Non-Farm Payrolls (NFP) data for July 2025 has been released, showing a significant miss on expectations.

Here's a breakdown of the key figures and their potential implications:

• NFP Headline Number: The U.S. economy added 73,000 new jobs in July, which was well below the market consensus forecast of around 106,000 to 110,000.

• Revisions to Previous Months: The reports also included substantial downward revisions to previous months' data. The June NFP number was revised sharply lower from an initial 147,000 to just 14,000, and the May figure was also revised down. These revisions combined mean that the total employment gains for May and June were significantly lower than previously thought.

• Unemployment Rate: The unemployment rate ticked up to 4.2% from 4.1% in June, as was widely projected by analysts.

• Average Hourly Earnings: Wage growth, a key inflation indicator, is a crucial part of the report. The data showed an increase of 0.3% in July and 3.8% from a year earlier, which was higher than the previous month's figures.

Impact on XAUUSD (Gold)

The July NFP report presents a mixed picture that could lead to volatility in the XAUUSD market:

• Initial Reaction (Negative for USD, Positive for Gold): The headline NFP number and the substantial downward revisions were a clear sign of a cooling U.S. labor market. This weak data generally weighs on the U.S. dollar as it reduces the likelihood of the Federal Reserve raising interest rates. A weaker dollar typically makes gold more attractive to international buyers, pushing its price higher.

• A Closer Look (Potential Headwind for Gold): However, the increase in average hourly earnings is a counter-argument to the dovish sentiment. Stronger-than-expected wage growth can fuel inflation concerns, which could prompt the Federal Reserve to maintain a hawkish stance despite the weak jobs growth. A hawkish Fed is generally bullish for the dollar and bearish for gold.

• Long-Term Trend and Technicals: Before this report, the U.S. dollar had been on a strong run, and gold had been under pressure. Gold's monthly candle for July closed as a "shooting star," which is often a bearish signal. The price had also been rejected at resistance levels around the $3,435 mark. The market is now at a critical juncture. The weak NFP data could be the catalyst for a broader U.S. dollar sell-off and a renewed rally for gold, which could find support around the $3,270 to $3,250 zone. However, if the market focuses more on the wage inflation aspect, the dollar could remain resilient, and gold may struggle to break above key resistance levels.

Based on the XAUUSD price below, you can see that the price shot up at 1 Aug 2025, 830pm Malaysia time during the announcement.

It shot up 400 pips in a few minutes after the announcement.

Also note that, when the price shot up too high, many retailers will try open sell order or sell positions.

We should not follow the majority of retailers, and do contrarian position.

When most retailers traders sell, we will buy.

In summary, the July 2025 NFP report provided a bearish signal for the U.S. dollar due to the weak jobs data and revisions. This would typically be a positive catalyst for XAUUSD. However, the accompanying rise in average hourly earnings could complicate the picture and keep the market in a state of uncertainty. Traders are likely to be watching how the market digests these conflicting signals and whether a new, sustainable trend emerges.

Disclaimer: This information is for educational purposes only and is not financial advice. Trading foreign exchange and precious metals involves a high level of risk and is not suitable for all investors. You should carefully consider your investment goals, level of experience, and risk appetite before making any trading decisions.

Reference Link:

https://www.forexfactory.com/news/1354274-the-us-employment-situation-july-2025

Happy Investing! 😉