Gold Weekly Review: Gold prices cover most of the decline, employment data temporarily binds FED claws
Spot gold fell once more this week, once approaching last week’s low of $1,804.63 an ounce since late December last year, and the U.S. dollar index hit a new high of 105.890 since early December last year, as Federal Reserve Chairman Powell signaled this week that he would not rule out re-accelerating interest rate hikes.
However, the number of Americans filing new claims for jobless benefits rose the most in five months last week, as U.S. employment data released this week slightly weakened.The unemployment rate in the United States rose by 0.2 percentage points in February, and the annual rate of average hourly wages was lower than expected.Gold and the U.S. dollar index reversed most of their intraday moves.
As of press time, spot gold fell 0.63 percent to $1,843.52 an ounce; the U.S. dollar index rose 0.18 percent to 104.721.
U.S. non-farm payrolls data for February suggested that the labor market remained tight, with initial jobless claims remaining low despite high-profile layoffs in the tech sector. Data released this week showed that the ratio of job vacancies to unemployed people was 1.9 to 1 in January.
While U.S. nonfarm payrolls rose more than expected in February, rising unemployment and slowing wage growth are still good news for the Fed. If the Fed insists on raising interest rates once more this month to 50 basis points, unless the CPI report released next week shows that inflation is still very strong.
The well-known financial blog “Zero Hedging” commented on the February non-farm payrolls: Some traders believe that it is obvious that the federal funds rate does not have a huge impact on the real economy. It will affect housing, banks and start-ups, but beyond that, the impact is limited.Traders see real economic growth now as a result of massive government spending
Powell’s congressional testimony continues unabated
Federal Reserve Chairman Powell delivered a semi-annual monetary policy testimony in Congress this week, conveying a hawkish message that interest rates will be raised faster and higher, adding more confidence to the king’s dollar, and the U.S. dollar index once jumped to a three-month high.
In the past few weeks, the United States has released a series of strong economic data, indicating that inflationary pressures continue, prompting Federal Reserve Chairman Powell to warn Congress on Tuesday (March 7) that the Fed will raise interest rates faster and higher. He also emphasized that the debate is still ongoing. A final decision will depend on data released before the March meeting.
Powell acknowledged that the Fed’s initial assumption that inflation was a “transitory” factor that would ease on its own turned out to be wrong. He also expressed surprise at how well the labor market has recovered from the coronavirus pandemic.
Dane Cekov, senior macro and currency strategist at Nordea, said: “With the Fed more hawkish, the dollar will get short-term positive in the next few weeks. We expect the Fed to raise interest rates to 6% in the next few months. After Powell’s comments, they are now Might pick up the pace.”
StoneX analyst Rhona O’Connell said that the market now expects the federal active interest rate to move to a higher level, Powell may resume the possibility of raising interest rates at a greater pace, and the high interest rate level will last longer, which has hit gold.
MICHAEL BROWN, market analyst at TRADERX in London, said: “Fed Chairman Powell made a surprisingly hawkish statement that put the option of a 50 basis point rate hike in March on the table, while also showing disappointment at the lack of progress on inflation so far. . This is another reminder to the market that the Fed is determined to tighten and maintain tight financial conditions, and the dollar bulls regained their dominance.”
Financial conditions have not materially tightened
The U.S. labor market remains very tight and the housing services sector is hyperinflated, all of which are linked factors affecting the outlook for a rate hike by the Federal Reserve. The Fed wants a sharp easing in the labor market to curb inflation in the services sector. U.S. CPI data due next Tuesday will also be a key basis for the Fed’s decision.
The Fed’s fierce battle with inflation over the past year has raised the cost of home mortgages and other credit. But little progress has been made in the decline in the core inflation measure the Fed watches, and the number of job vacancies per job seeker remains high at 1.9, both well above pre-pandemic standards.
However, financial conditions have indeed not tightened substantially, and long-term market interest rates have not risen significantly. The yield on the 10-year U.S. bond briefly topped 4%, but failed to hold above it. The inversion between the 2-year and 10-year Treasury yields broke through 100 basis points. If a 50 basis point hike really makes sense from a purely macro perspective, it probably should, too.
Independent analyst Ross Norman said gold prices rose slightly as people bought on dips, but the outlook for gold didn’t look very encouraging as expectations of higher long-term interest rates strengthened.
Rick Rieder, chief investment officer of global fixed income at BlackRock, said: “While we are very confident that inflation will not exceed last year’s peak, inflation may remain sticky for a longer period of time, which does suggest that the Fed will continue to raise interest rates for longer than previous expectations.”
Kiwibank chief economist Jarrod Kerr said the 10th straight month of surprise employment reports was a sign of real strength in the US economy. But that’s a little frustrating for the Fed. They’ve obviously tightened the policy a lot, hoping to have an effect. But many economic indicators have rebounded in recent months. So it looks like the Fed’s job isn’t done yet.
