2023-08-09 11:45:00
© Archyde.com. Spot gold retreats, Moody’s slashes at U.S. banks, but market favors forecast
Spot gold prices rebounded nearly 0.4% on Wednesday (August 9), boosted by Moody’s downgrade of Bank of America’s rating, but investors were generally cautious ahead of the release of U.S. inflation data, and gold prices gave up all of their intraday gains . The data might set the tone for the Fed’s monetary policy outlook.
At 19:39 Beijing time, spot gold fell 0.01% to $1,924.92 an ounce; the main COMEX gold futures contract fell 0.06% to $1,958.8 an ounce; the U.S. dollar index fell 0.10% to 102.444.
Moody’s downgrades rating
Concerns regarding the health of the world’s largest economy underpinned gold once more following ratings agency Moody’s downgraded 10 small and mid-sized U.S. banks. Moody’s rationale for the decision is that growing financial risks and stress might weaken the profitability of these banks.
In March this year, the banking crisis broke out in the United States. The 16th largest bank in the United States – Silicon Valley Bank – suddenly collapsed. Depositors became more and more worried regarding the bank’s solvency and triggered a typical bank run. Signature Bank and First Republic followed suit, raising more concerns regarding the stability of the banking sector.
In its report, Moody’s highlighted that some of the problems that sparked the banking crisis earlier this year have not gone away, with banks still facing the risk of depositors withdrawing their funds, while the current higher interest rate environment is reducing lenders’ investments at a time of ultra-low interest rates value. Smaller banks are particularly at risk, potentially leading to a loss of investor confidence.
CPI likely to rise in July
Xiao Fu, an analyst at BOCI, said gold prices remained within a narrow range in the face of the prospect of higher real interest rates despite being supported by the central bank’s bargain-hunting. “The focus is on whether the Fed wants to raise rates once more in September or later in the year.”
U.S. hiring slowed in July, but the U.S. unemployment rate remained near record lows. Investors expect headline CPI to rebound as a recovery in oil prices lifts gasoline prices. The U.S. Consumer Price Index for July will be released on Thursday (August 10). It is expected that the overall CPI annual rate will rise by 0.3 percentage points to 3.3%; the core CPI annual rate will remain unchanged at 4.8% from the previous value.
Economists at Commerzbank believe that for gold to start climbing once more, existing interest rate hike expectations in the market must disappear. They expect this to happen in the fourth quarter. Therefore, they believe that gold will continue to hover above $1,900 in the short term before rising to $2,000 by the end of the year.
Harker: The Fed can stop being impatient
But Philadelphia Fed President Harker said on Tuesday (August 8) that unless there is a sudden change in the direction of recent economic data, the Fed may be at a stage where it can keep interest rates unchanged. If a halt to rate hikes is appropriate, “we need to hold out for a while … I don’t foresee any immediate easing of policy rates.”
Like other Fed officials, Harker welcomed recent data showing that inflation has retreated sharply from more than four-decade highs a year ago. “All in all, I expect only a modest slowdown in economic activity, with a slow but sure deflation to follow. In other words, I do see that we are on course for the soft landing we all hoped for, and this It has proven to be quite elusive in the past.”
Baden Moore, head of carbon and commodity strategy at National Australia Bank, said: “For the () recovery to be sustained, we think the market needs to see increased certainty of US rate cuts in 2024. We remain cautious on the outlook as Fed rate cut expectations continue Risk of delay or downgrade.”
Ulrich Leuchtmann, head of foreign exchange and commodity research at Commerzbank, pointed out that following the new crown pandemic, people may think that some factors supporting the resilience of the U.S. economy may have weakened, and perhaps the temptation to overspend U.S. consumers is no longer there. So easily, these consumers as employees may no longer be willing to work in conditions in developing economies that Europeans can only imagine. But from the current point of view, this assumption is unreasonable.
Leuchtmann believes that several years of the pandemic have not materially changed the U.S. consumer, and that the U.S. economy is more resilient to headwinds than Europe. This means that capital spending in the US is more profitable in the long run. This makes the dollar more popular and therefore more expensive.
Spot gold may fall below 1920
On the hourly chart, gold prices have been in a downward convergent wedge since the end of July. If it cannot effectively break through the upper edge of the wedge, the gold price may fall below $1,920 in the market outlook; but to truly start a new upward trend, the gold price must stand above the neckline at $1,947.
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