Gold trading reminder: The minutes of the Fed meeting are coming!The dollar remains strong, gold prices test the 1660 mark again
During the Asian session on Wednesday (October 12), spot gold fluctuated slightly and was currently trading around US$1,663. After the Bank of England Governor Bailey spoke overnight, the US dollar turned to rise, causing the price of gold to fall from above the 1680 mark. The Cleveland Fed Chairman Mester delivered a hawkish speech again, which also supported the US dollar. The US dollar index remained strong on Wednesday, once refreshing a nearly two-week high of 113.59, while the gold price once again retreated to support near the 1660 mark.
The market’s attention has begun to focus on the minutes of the Fed meeting that will be released on this trading day. At present, market expectations are more likely to be hawkish. Investors need to beware of the possibility that the price of gold will break below the key support of 1660.
Of course, as the geopolitical situation in Russia and Ukraine continues to be tense, and the European energy crisis continues, there are also some safe-haven buying to support the price of gold. Even if the price of gold breaks below the 1660 mark, it still has the opportunity to bottom out and rebound.
Ryan McKay, commodity strategist at TD Securities, said, “A lot of the daily price action right now is noise and the market is still waiting for inflation data and minutes from previous Fed meetings before the next Fed meeting. It’s been pretty strong with rising interest rates, so I think gold is going to have some downside.”
Looking ahead, “it’s hard to find a bullish case for gold,” as inflation peaks may not yet come and rate hikes may continue until that happens, said Craig Erlam, senior market analyst at OANDA. “It’s not an ideal environment for gold. We’ve seen a rebound in the dollar and yields, and gold has taken a hit as a result.”
Erlam said he wasn’t surprised the rally failed over the past week. But now that gold’s latest rally has “completely faded,” Erlam wondered how much more gold could fall in the near term as the market braces for U.S. inflation data and the Fed’s next rate hike in November. “Key levels below include $1,640 and $1,620, then $1,600. $1,685-$1,690 looks interesting if gold does bounce back.”
On this trading day, we also need to pay attention to the performance of the PPI data of the United States in September, pay attention to the meeting of G20 finance ministers and central bank governors, pay attention to European Central Bank President Christine Lagarde, Minneapolis Fed President Kashkari, Federal Reserve Governor Barr and other central banks official speech. Keep an eye out for news on geopolitical issues and changes in market expectations for U.S. inflation data.
The fundamentals are mainly bearish
[Federal Reserve Mester said that the surging inflation has not been controlled yet, and further tightening policy needs to be pushed forward]
Cleveland Fed President Mester said on Tuesday (October 11) that although the Fed has raised interest rates sharply this year, the Fed has not brought surging inflation under control and will need to further tighten monetary policy.
“Unacceptably high and persistently high inflation remains a key challenge for the U.S. economy,” Mester said at the Economic Club of New York. “Although the demand side of the economy has eased and conditions on the supply side are showing signs of improvement, on the inflation side no progress.”
The policymaker is a voting member of the Fed, which has significantly raised short-term borrowing costs this year. At the September policy meeting, policymakers raised the target range for the federal funds rate to 3% to 3.25% and signaled further hikes into next year, with an eye toward bringing the federal funds rate to 4.6%.
In her remarks, Mester said she expected to see more rate hikes than the collective view of policymakers. “Monetary policy is moving into restrictive territory and will need to stay there for a while to keep inflation down to our 2 percent target, and I don’t expect a lower target range for the federal funds rate next year.”
Mester did not comment on what size of rate hike she would like to see at the next meeting, explaining that “the size of the rate hike and the peak of the federal funds rate at any FOMC meeting will depend on the inflation outlook, which depends on the An assessment of the rate at which aggregate demand and supply return to a better balance and price pressures are reduced”
Mester also dismissed the notion that this round of Fed rate hikes is somewhat excessive. The Fed recently raised interest rates by 75 basis points three times in a row, the largest rate hike in recent decades. The target range for the federal funds rate was near zero in March.
When it comes to the Fed’s path to rate hikes, she said, “I don’t think it’s aggressive relative to where inflation is right now and how quickly it’s rising.”
Mester said inflation should fall to 3.5% by next year and return to the Fed’s 2% target in 2025. The Fed’s preferred measure of inflation, the personal consumption expenditures (PCE) price index, climbed 6.2% in August from a year earlier.
Mester said the Fed’s likely policy path relative to its recent path would dampen economic activity and would lift the unemployment rate, currently 3.5%, to 4.5% next year and even higher in 2024.
“With growth well below trend over the next few years, it’s possible that once there is a shock, the U.S. economy will be in recession for some time,” Mester said, adding that “none of this is pain-free,” but This is necessary because high inflation imposes heavy costs on the economy.
But Mester added that while there is a risk of an economic downturn, “I don’t think we’re going to be in a deep recession” and the underlying economic fundamentals still look pretty good. “There is currently no evidence that the market is functioning disorderly.”
【It must be done in three days! Bank of England governor asks domestic funds to quickly solve problems]
Bank of England Governor Bailey said on Tuesday that investors such as British pension funds battered by the collapse in government bond prices had three days to resolve their problems before the central bank would withdraw support.
Just hours earlier, the Bank of England expanded its emergency bond-buying programme to include inflation-linked UK government bonds, citing a “significant risk” to UK financial stability that could fuel a “self-reinforcing” sell-off in the market.
But Bailey made it clear in a speech in Washington that evening that he had no intention of extending bond purchases beyond Friday (October 14) and would stop buying them on Friday.
“We have announced that we will stop by the end of the week. We think the rebalancing has to end by then,” Bailey told an event organized by the Institute of International Finance (IIF) on Tuesday.
“And my message to the funds and to all the agencies involved in managing those funds is: You have three days left. You have to get this done.”
Sterling fell more than 1% to $1.0951, its lowest since Sept. 29, after Bailey’s remarks.
Pension funds have been busy raising cash since Chancellor Quarten announced the government’s £45bn unfunded tax cut package on September 23.
The slump in British government bonds forced the funds to provide emergency collateral for liability-driven investments (LDIs), which use derivatives to hedge losses in pension pools.
“I think they need to focus on doing everything that needs to be done by the end of the week,” Bailey said.
Quran Shah, chief economist at the International Monetary Fund (IMF), said on Tuesday that Quarten’s efforts to boost growth and the Bank of England’s attempts to control inflation were not working well.
[The dollar rose to a nearly two-week high]
Although the U.S. dollar index fell by 0.68% on Tuesday, helping the gold price rebound to around 1683, but after the Bank of England Governor Bailey’s speech, the U.S. dollar index reversed into a rise, causing the gold price to give up all gains and fall back to around the 1660 mark again.
The U.S. dollar index remained strong on Wednesday, hitting a peak of 113.59, the highest since September 30.
Erik Bregar, director of FX and precious metals risk management at Silver Gold Bull in Toronto, said: “Risk aversion will continue until we see some good news, which is all positive for the dollar. I can see it still driving the dollar higher. , although people think it’s a crowded trade. But the trend right now is definitely bullish on the dollar.”
Investors are also gearing up for a key inflation report later this week, which is expected to show continued strong price pressures. Overall, dollar sentiment remained positive as concerns over rising interest rates and geopolitical tensions rattled investors.
Analysts believe strong U.S. labor market data and expectations for high inflation forecasts on Thursday keep interest rates high for all of 2023, which should propel the dollar back toward its 2002 peak hit last month.
U.S. data on Thursday is expected to show headline inflation at 8.1% in September, down from 8.3% in August. Core inflation is expected to rise to 6.5% from 6.3% in August.
[U.S. Treasury yields approach multi-year highs]
Yields on longer-dated U.S. Treasuries surged to multi-year highs on Tuesday, as the rout in the U.K. government bond market hit global bonds amid growing concerns that U.S. inflation data this week won’t stop the Federal Reserve from raising rates quickly .
Investors are hoping to see inflation begin to slow in the September producer price index (PPI) released on Wednesday and the consumer price index (CPI) released on Thursday.
Markets expect the Fed to raise rates by 75 basis points for the fourth straight time at its Nov. 1-2 policy meeting. Investors worry that the Fed’s most aggressive policy tightening in decades could tip the economy into recession.
Tom Di Galoma, managing director of Seaport Global Holdings LLC, said, “We may face a moment when the Fed needs, not necessarily to turn, but to stop raising rates because it’s starting to affect a lot of industries, a lot of credit. It’s definitely It has weighed on equity values.”
The yield on the 30-year Treasury note jumped nearly 12 basis points on Tuesday, reaching a nearly nine-year high of 3.959% at one point.
The 10-year Treasury yield rose just over 12 basis points to 4.006% at one point, near a 12-year high of 4.019% hit last month, as bond investors digested hawkish messages from Fed officials that interest rates will remain in place for a longer period of time maintain a high level.
Peter Cramer, senior portfolio manager at SLC Management, said: “The pain felt by the market is not necessarily felt by most consumers, so the Fed continues to feel that they have reason to seek to normalize inflation. They will be more willing to start reopening There was a clear period of rising interest rates before going back to the period of stimulus to the market.”
Di Galoma said the emergency intervention by the Bank of England made liquidity very difficult in the UK market after the market took issue with the UK government’s economic plan.
[IMF chief economist says central banks’ inflation-fighting war will continue until 2024]
The inflation-fighting battle by central banks could take two more years, leading to a rise in unemployment and lower living standards for many people around the world, the International Monetary Fund (IMF) chief economist Guran Shah said on Tuesday.
Excluding energy and food, broad “core” inflation pressures will take some time to fall to the central bank’s target of around 2 percent, he said in an interview.
“Our forecast is that inflation will start to fall, but not return to the central bank’s target in 2023,” Gulensa said, “and will be closer to the target in 2024.”
Quransha said the central bank should “stay the course” in its efforts to normalize monetary policy and fight inflation.
“Our advice is that central banks should stay the course,” Guranza said at a briefing at the annual meetings of the International Monetary Fund and World Bank. “That doesn’t mean they should move faster than they have been. ….but that doesn’t mean they should pause on the road to currency normalization.”
[The Bank of Korea, as expected, raised interest rates by 50 basis points again, and the surge in the dollar exacerbated the risk of imported inflation]
The Bank of Korea raised interest rates by 0.5 percentage points on Wednesday, the second 50 basis point hike since July, as aggressive U.S. monetary tightening pushed the dollar soaring and fueled South Korea’s import inflation.
The Bank of Korea raised its benchmark policy rate by 50 basis points to 3.00% on Wednesday, bringing the cumulative rate hike since August last year to 250 basis points.
In the survey, 23 of 26 analysts expected a 50 basis point rate hike, while the remaining three expected a 25 basis point hike.
The U.S. Federal Reserve has raised interest rates by 75 basis points three times, sending the dollar soaring against most other currencies, forcing policymakers around the world to guard against fresh inflationary pressures and the risk of capital outflows.
The median forecast in a Archyde.com poll showed the Bank of Korea’s benchmark rate at 3.25 percent by year-end before peaking at 3.50 percent in the first quarter of 2023, but nearly half of respondents expect it to hit 3.75 percent in the first quarter of next year.
Continued interest rate hikes by most central banks around the world have increased the opportunity cost of holding gold, undermining the attractiveness of non-yielding assets.
Fundamentals are mostly bullish
[Ukraine seeks more Western air defense assistance at G7 meeting, NATO strengthens security]
Ukrainian President Volodymyr Zelensky on Tuesday continued to call on the leaders of the Group of Seven (G7) nations to provide more air defense capabilities, with the G7 vowing to support Kyiv “as long as the need arises.”
NATO said it was closely monitoring Russia’s nuclear forces following a string of battlefield defeats in Ukraine, and that allies were tightening security around critical infrastructure following a recent attack on a Baltic gas pipeline.
Russian missiles hit Ukrainian cities again, but not as intensely as Monday. Russia launched its largest air offensive on Monday since it invaded Ukraine on February 24, killing 19 people and injuring more than 100 in dozens of strikes and blacking out power across the country.
“When Ukraine acquires a sufficient number of modern and effective air defense systems, rocket attacks, the key element of Russian terror, will no longer work,” Zelensky told G7 leaders in an online meeting. He again ruled out the possibility of peace talks with Russian President Vladimir Putin.
Ukraine on Tuesday received the first of four IRIS-T air defense systems promised by Germany, a source at the German Defense Ministry said.
The White House said the United States is accelerating the delivery of advanced NASAMS air defense systems to Ukraine.
In a statement, the G7 pledged to continue to provide Ukraine with financial, humanitarian, military, diplomatic and legal support as long as it is needed. Moscow has accused Western countries of escalating and prolonging the conflict by supporting Kyiv.
[The German Chancellor calls on the whole people to unite to overcome the energy crisis, and the differences within the EU remain unresolved]
German Chancellor Scholz said on Tuesday that as long as businesses and households pull together, Germany can weather a winter gas shortage.
EU energy ministers will gather in Prague on Wednesday to seek progress on price caps and other measures, divided over the best response to the energy crisis.
Ukrainian President Volodymyr Zelensky called on G7 countries to support a cap on Russian oil and gas exports.
Previous EU talks failed to agree on a price cap proposal, which Germany and other wealthier EU member states fear could make it harder to get supplies.
Germany’s plan to boost spending to ease the impact of soaring energy costs has also sparked unease in some European Union countries that it is beyond the reach of poorer countries. A German government spokesman said on Tuesday that Germany suggested that European Union countries could use the 800 billion euros of funds from the epidemic recovery fund to help solve other crises such as the energy crisis.
Scholz said Germany cannot count on Russian energy supplies for the foreseeable future, but should be able to cope with the situation. “If we all continue to manage to adapt to the changed landscape – citizens, businesses and politicians – then we will be able to get through this winter safely”
There are already signs that Germany’s energy demand climbs when temperatures are cooler, despite the need to curb energy consumption.
Analysts see the shortfall in gas across Europe at almost 15% of average winter demand and say Germany needs to cut energy consumption by about a fifth, a worrying impact for Europe’s largest economy as Germany’s Industry has always been reliant on abundant, affordable energy supplies.
The energy crisis has already had knock-on effects across Europe, as businesses have passed on the extra costs and household budgets have been squeezed.
[Economy faces multiple shocks, IMF downgrades global growth outlook for 2023]
The International Monetary Fund (IMF) on Tuesday cut its global growth forecast for 2023, weighed by the war in Ukraine, high energy and food prices, inflation and sharply higher interest rates, while warning that conditions could worsen significantly next year.
The IMF said its latest World Economic Outlook forecast showed that a third of the world economy could fall into contraction by next year. This means that the first offline annual meeting of the IMF and the World Bank in three years will open in a solemn atmosphere.
“Major economies such as the U.S. and the euro zone will continue to stagnate,” IMF Chief Economist Koran Shah said in a statement. “In short, the worst is yet to come, and 2023 will feel like a recession for many.”
The IMF expects global GDP growth to slow to 2.7 percent next year, down from a July forecast of 2.9 percent, as rising interest rates slow the U.S. economy, Europe struggles to cope with soaring oil prices and Asian powers take steps to deal with the coronavirus pandemic. continued lockdown measures and weakness in the real estate sector.
The IMF maintained its growth forecast for 2022 at 3.2 percent, as European output came in stronger than expected and the U.S. underperformed. Global growth will reach 6.0% in 2021.
The U.S. economy is expected to grow by just 1.6% this year, down 0.7 percentage points from the July forecast.GDP contracted unexpectedly in the second quarter. The IMF kept its 2023 U.S. economic growth forecast unchanged at 1.0%.
[New York Fed survey: U.S. households’ expectations for spending growth in the coming year fell sharply in September]
U.S. households’ expectations for spending plans for the year ahead fell sharply in September, the Federal Reserve Bank of New York said on Tuesday, and the report also found a moderation in short-term inflation expectations.
The bank said its September survey of consumer expectations found thatRespondents expect their spending to grow 6% in the coming year, a sharp drop from the 7.8% increase predicted in the August survey.The bank noted that the drop was the largest since the survey began in 2013.
On the inflation front, households said they expected short-term price pressures to ease but longer-term price pressures to increase. The survey found that the public expects inflation to be 5.4% a year from now, down from the 5.7% forecast in August. Inflation expectations for September were the lowest in a year, the bank said.
Households, however, expect inflation to be 2.9% three years later, up from 2.8% in August, while inflation is expected to be 2.2% five years later, up from the 2% forecast in the August survey.
The New York Fed report was a mixed bag for the Fed. The Federal Reserve is now aggressively raising interest rates to bring down inflation, which is currently at a 40-year high. Fed officials acknowledged that such efforts could be painful for the economy, predicting rising unemployment as a side effect of their actions.
Respondents continue to expect household income to increase by 3.5% in the coming year, the New York Fed found in the survey.
The bank also noted that in its September survey, “respondents’ perceptions of current household finances were broadly unchanged from a year ago, but the proportion of households reporting worsening household finances compared to a year ago remained close to this level. The high point of the series data.”
In its report, the New York Fed also noted that expected home price growth slowed to 2% in September, the slowest since June 2020. The report noted that the expected decline in home prices would be widespread across the country, and said that “relative to pre-pandemic levels, home price growth expectations remain low.”
Outlook
Investors need to focus on the minutes of the Fed meeting and the U.S. CPI data for September released on Thursday.
The Fed raised interest rates by 75 basis points as scheduled in September, the fifth time the Fed has raised interest rates this year and the third consecutive rate hike of 75 basis points. After the September interest rate meeting, the speeches of Fed officials were unanimously skewed towards hawks. The minutes of the Fed meeting to be released on this trading day are likely to be skewed towards hawks, and they tend to suppress gold prices before the minutes are released. But investors also need to be on the lookout for unexpectedly less hawkish than expected.
Regarding the US CPI data, JPMorgan’s trading department said that for the stock market, as long as the CPI rises higher than the previous value of 8.3%, it will be a big problem. “It feels like another 5% one-day drop,” Andrew Tyler and others wrote in a note on Monday, noting that the S&P 500 fell 4.3% on Sept. 13, when inflation data for August came in above expectations.
Relatively speaking, spot gold fell by about $30 on September 13, from around 1730 to around the 1700 mark, and fell to around $1614 in the following two weeks.
“Gold’s action this week is likely to be influenced by Thursday’s U.S. inflation data,” Lukman Otunuga, manager of market analysis at FXTM, said in market commentary.
“It’s almost certain that the fiery CPI report will reinforce bets for aggressive rate hikes, ultimately pushing up the dollar and U.S. Treasury yields, which is bad for gold,” he said. Such a development could pull the precious metal down to $1,655 , $1615 and $1600.”
But Otunuga said, “A weaker-than-expected inflation report could give gold bulls room to fight back, opening a path towards the $1,700 psychological level.”
At 10:42 Beijing time, spot gold was reported at $1,662.67 per ounce.