Spot gold has rebounded from a six-day low, but the Fed will continue to correct the market’s mentality
On Tuesday (October 11), spot gold rebounded after falling to a six-day low of $1,660.76 an ounce, with investors cautious ahead of the release of U.S. inflation data. However, the prospect of aggressive interest rate hikes by the Federal Reserve is expected to continue to weigh on gold prices.
At 20:17 Beijing time, spot gold rose 0.13% to US$1,670.78 per ounce; the main COMEX gold futures contract rose 0.17% to US$1,678.3 per ounce; the US dollar index fell 0.22% to 112.932.
The US non-farm payrolls data released last week was stronger than expected, and the market is now focusing on the CPI data to be released on Thursday (October 13). With the U.S. labor market tightening, inflation is not expected to fall much, and policymakers are likely to push ahead with raising borrowing costs to sufficiently restrictive levels in the coming months.
ING foreign exchange strategist Francesco Pesole said,This week, the minutes of the Fed’s September meeting and the US consumer price index will be released successively, which is very important to strengthen the Fed’s hawkish expectations and may continue to support the dollar.
Policy paths depend on data
Federal Reserve Vice Chairman Brainard said on Monday (October 10) that the Fed clearly needs to adopt a restrictive monetary policy to reduce inflation, but the path and speed of interest rate hikes will still “depend on the data.” Brainard did not express his determination to fight inflation in a positive way, but reiterated that the Fed’s “premature” exit from raising interest rates is risky, and that inflation “will take some time” to fall.
Brainard listed some of the things she thinks could help lower inflation while keeping the U.S. job market and economy intact. , while further improving supply chain and recruiting.
“The U.S. can reduce inflation relatively quickly without a recession or a sharp rise in unemployment,” Chicago Fed President Evans said on Monday. The policymaker also added that the Fed needs to steer policy “cautiously and wisely.” interest rates to “reasonably restrictive levels”.
Evans said the Fed has a strong consensus to raise its target policy rate to around 4.5% by March and keep it there, while the central bank assesses the impact on inflation and gives supply chains time to recover.
The dollar is going through its most bullish run in more than half a century, with few signs that it will end anytime soon, and investors have been able to go long despite hedge funds reducing their long exposure in recent weeks, Fed hawk The faction stance will remain supportive of the dollar for some time.
Worry about excessive policy tightening
But concerns are growing that the current pace of the Fed’s rate hikes is weighing on the global economy and has outstripped the central bank’s ability to monitor its impact. A poll of 45 professional forecasters by the National Association for Business Economics (NABE) showed that just over half said: “The biggest downside risk to the U.S. economic outlook is that monetary policy is too tight.”
Brainard also highlighted some evolving risks, including possible pressure on financial markets and the possibility of a faster-than-expected U.S. economic slowdown. It’s more than expected.”
There are also signs that U.S. consumer household balance spending is falling faster than previously estimated, which could signal a slowdown in consumer spending, she said. And noted that the sharp shift in risk sentiment “could be magnified, especially given the fragile liquidity in core financial markets”.
Recent speeches by Fed officials have suggested that interest rates will remain high for longer, ruling out a premature policy shift in 2023. Expectations of aggressive rate hikes should put upward pressure on real yields, keeping the dollar, already near multi-decade highs, on track for further appreciation. In this environment, it is difficult for gold to perform well.
Evans also acknowledged that recent heightened market volatility has created new difficulties for decision-making, but he believes that “labor market pressures are having a greater impact on inflation than usual” due to “unusual interactions” between the job market and supply chain. Big.”
As high interest rates dampen demand and reduce labor market “heat”, the same dynamics should allow inflation to fall “without causing excessive economic weakness in the form of significantly higher unemployment.”
Fed officials have largely dismissed those concerns, acknowledging the risk of over-tightening monetary policy, but also saying they need to raise the target federal funds rate to a level they believe will keep inflation in check by suppressing the economy.
Stephen Innes, SPI Asset Management Partner, said,If the U.S. economy, which is still fairly resilient for now, starts to weaken, gold could be in focus, but there must be clear signs that the Fed is willing to walk away from raising interest rates and slowing inflation.
Spot gold looks at $1655
On the daily line, the price of gold started a downward iii wave from $1,729, and the lower support looked at the 38.2% target of $1,655. The iii wave is a sub-wave of the downward (iii) wave that started from $1,808, and the (iii) wave belongs to Downside ((iii)) wave started from $2070.