The impact of the US employment report on the gold spot rate

Abstract

Purpose- Considering the various financial markets, it can be observed that macroeconomic events such as announcement releases might affect the volatility and the direction of price movements in the related markets. While some announcements might play a substantial role in this subject, some might be categorized as unessential announcements in the economic calendars. Reports related to the employment situation, inflation, growth of the domestic product, and commodity reservations of a country are crucial points on the schedule of investors and traders all around the globe. However, reports coming from countries with a major economic share have a much more significant effect on the market. In that regard, researchers are more interested in the evaluation of economic events of countries like the United States, United Kingdom, Germany, and China. In that regard, this study focuses on the impact of the U.S. employment situation report on the XAU/USD spot exchange rate. Methodology- In the first part of the study, the significance of relevant factors of the announcement has been evaluated to specify the importance of the elements included in the employment report. In that interest, an OLS regression model has been developed in the first step. Furthermore, the face and statistical validity phases have been controlled to improve the efficiency of the model. The second part of the study focuses on the direction of the price movement respectively after specific periods from the report’s release. To satisfy the desired goal of the study, two various models have been applied to the data to evaluate the two models and their performances. The first model is based on logistic regression approaches while the second model benefits from XGboost regression. Accuracy metrics have been evaluated for both models to decide on the healthiness of the performances. Findings- Findings demonstrate that the gold spot exchange rate reacts strongly to the announced nonfarm payroll employment figure, while the market takes its revision of the prior month and unemployment rate as additional data around the release of the announcement. Results suggest that employment reports labeled as “bad news” for the U.S. economy caused an increase in the exchange rate of the gold spot. Price discovery for different time intervals after the announcement release shows that the first 10 minutes are the most crucial. Time intervals before the announcement release imply that exchange rate changes are regular and there is not any recognizable pattern for price movements before the announcement release, while abnormal returns start to show up just after the release of the announcement. Conclusion- To sum up, the impact of the announcement report on the price movement of the gold spot is undeniable. However, uncertainties increase before the announcement, and volatility increases after the announcement. Various statuses lead to specific movements in the market. While the uncertainties are lower before the announcement, the price movement of the gold spot would be diverse to the status of the announcement. Keywords: U.S. Nonfarm payrolls, employment report, macroeconomic event study, gold spot, machine learning, decision tree JEL Codes: F31, F62, G15