The market is gauging the Fed's next move... The psychological battle between gold and the dollar depends on the NFP flow

Spot Gold, Near $4,100 per ounce “Waiting Phase” Continues

On Thursday morning Asian time, spot gold(XAU/USD) showed a tug-of-war between buying interest and profit-taking around the $4,110 per ounce level. Although it appears to have entered a correction phase after recent sharp fluctuations, this is less a simple technical correction and more a reflection of market sentiment: “Let’s reduce position sizes until important employment data is released.”

The U.S. federal government shutdown that lasted 43 days delayed the September non-farm payrolls(NFP) report unexpectedly, causing global asset markets, including gold and the dollar, to proceed without key economic indicators for a month. Now, the upcoming September employment report will serve not just as a monthly statistic but as the first puzzle piece filling in the “missing economic story” so far.

Possibility of Fed Rate Cut in December Plummets from 60% to 30% in a Week

What the market is actually betting on is not the employment data itself, but how the Fed will interpret and react to this data.

Since the October FOMC where the benchmark interest rate was cut by 25 basis points, there has been a growing cautiousness among Fed officials regarding further cuts. Market data based on the CME FedWatch tool shows that just a week ago, the probability of an additional rate cut in December was about 60%, but now it has fallen to around 30%. The same data and the same Fed are now viewed through different lenses: the “aggressive rate cut scenario” has rapidly cooled into a “wait-and-see stance.”

This shift in tone directly impacts global assets, including gold and the dollar. The more cautious the Fed appears, the more market expectations for gold’s role as a store of value diminish, creating a two-way relationship.

Weak NFP Data Likely to Be Interpreted as “Maintaining Easing Stance, Adjusting Pace” Rather Than “Immediate Cut”

In the current environment, even if employment data falls short of expectations, the Fed is more likely to maintain its easing stance and reassess future moves rather than implement an immediate rate cut.

The minutes reveal that some members expressed explicit discomfort about a December cut, and there are strong signals to “wait and see the effects of the 25bp cut already implemented.” This indicates a growing consensus that weak economic signals alone are insufficient to change the Fed’s fundamental position in the short term.

In this context, gold and the dollar are likely to fluctuate within a limited range around $4,100 per ounce. Rather than a one-sided rally, “volatility during the waiting period for events” is expected to dominate.

$4,100 is the “Psychological Benchmark” for the Insurance Position Waiting for the Fed’s Signal

The reason spot gold repeatedly hovers around $4,100 per ounce is that investors see this level as a “thermometer” for how long the Fed’s easing expectations will persist.

Given ongoing doubts about the labor market, the delayed NFP is the starting point for the economic data series extending into the end of the year. If the employment report significantly underperforms market consensus, it could highlight the possibility that “the Fed may implement a faster-than-expected additional cut,” reigniting expectations for a December rate cut. This scenario would once again strengthen the upward momentum of gold and the dollar.

Conversely, if employment figures remain solid, the question remains: “How long can the Fed sustain its policy stance?” Even in this case, gold is unlikely to be completely ignored, and at least demand as a defensive asset is likely to persist.

The Outcome Depends on Whether NFP Is a “Strong Signal” or “Just Another Data Point”

The current gold-dollar market is less about “going all-in” on a specific direction and more about maintaining risk hedging positions until the next move by the Fed is clearer.

The impact of the delayed September NFP on the market depends more on “what signals the Fed will send through it” than on the data itself. If the market leans toward expecting a rate cut in December again, the current moderate buying interest will be interpreted as “the early stage of a future rally.” Conversely, if the Fed’s cautious stance is reaffirmed, it will be reassessed as “a phase of unwinding insurance positions ahead of key economic data releases.”

Regardless of the short-term direction of gold and the dollar, what investors should truly monitor is not just the $4,100 level or the NFP figures themselves, but the upcoming signals and communication from the Fed. The state of the U.S. labor market will ultimately serve as the primary variable influencing the Fed’s next move.