International gold price hit near the low at the end of September, and rebounded sharply on the 21st, closing up 0.80% that week, and at the end of the trading session at $1,656.99 per ounce. In the past week, under the Fed tightening cycle, the 10-year U.S. bond yield once exceeded 4.3% intraday, hitting a new high since 2008, but the impact on gold prices was limited. According to investors' expectations of the path of the Federal Reserve's interest rate hike , we believe that the expectations are already sufficient at this time, and the negative impact of the Federal Reserve's tightening cycle on gold will tend to decrease.
Figure 1 Gold price in the past week
Data source: World Gold Association
Last week, Fed officials spoke mainly "hawkish". Officials emphasized the need to maintain high interest rates for a period of time to reduce inflation, saying that only when you see more "convincing evidence" to verify that inflation has peaked, the Fed will stop hike rate . But as the weekend approached, San Francisco Fed Chairman Daly released a rare signal of "dove". Daly said that "need to pay attention to the strength of the Federal Reserve's tightening, and cannot be over-squeezing. The extent of each interest rate hike should be reduced and interest rate hikes should be continued in small steps."
Daly's "dove" speech helped international gold prices rise by 1.81%, causing such a significant impact, mainly because investors have sufficient expectations for the "Feder hawkish interest rate hike path". According to data displayed by interest rate futures, investors believe that the probability of the Federal Reserve raising interest rates by 75bp in November has been confirmed, as high as 95%. The probability of 75bp in December has also risen to 45%. Compared with two weeks ago, investors expect that the end point of this round of interest rate hike is 4.75%-5.00%. So even if Fed officials release "hawkish" remarks, they fail to suppress international gold prices from falling below the low at the end of September. However, when San Francisco Fed Chairman Daly made "double" remarks, international gold prices rebounded significantly.
Figure 2 The path of the Federal Reserve's interest rate hike is expected
Data source: CME
Although the Federal Reserve's interest rate hike cycle, the 10-year US Treasury yield continued to rise and hit a new high last week, the dollar index has recently stopped at a high of 114.78. On the one hand, the rise in the U.S. Treasury yield was due to the release of the Federal Reserve to maintain the high interest rate level for a long time. At the same time, last week, because of the performance support of U.S. stocks rising, Dow Jones Industrial Average weekly rose to 4.89%. Investors risk preference rose, so they sold bonds, which helped boost bond yields. It can be seen that the rise in U.S. Treasury yields did not come from the renewed strengthening of the Fed's interest rate hike path, that is, investors have fully expected the Fed's interest rate hike path, so the suppression of gold prices is not obvious.
Figure 3 US Treasury yield
Data source: US Treasury Department
On the other hand, the US dollar index stopped rising in the short term and entered consolidation. First, investors have fully expected the Fed's interest rate hike path, reducing the boost to the US dollar index by the Federal Reserve's tightening cycle. Secondly, the comparison differences between the United States and the major constituent currencies of the US dollar index have changed, limiting the momentum for the US dollar index to strengthen in the short term.
British Prime Minister Tras announced his resignation last week. The outlook for political turmoil in the UK is more stable, which will help the unity of national policies and strengthen the logic of stability of the pound; the ECB is stepping up its pace of contraction. The ECB policymakers said that although the risk of economic recession increases, ECB must vigorously promote interest rate hikes to curb inflation, and even push borrowing costs to a level that limits economic activity, and may start to reduce the asset statement in the future. Regarding the unilateral depreciation of the Japanese yen against the US dollar, the Japanese authorities have repeatedly stated that they will start to deal with it. Due to Japan's extremely low interest rate policy, the yen may not be able to reverse the decline, but the intervention measures of the Japanese authorities are more likely to slow down the depreciation of the Japanese yen. Based on this, the US dollar index may maintain consolidation in the short term, relaxing the pressure on gold prices.
Figure 4 US dollar against the yen, pound, euro
Data source: investing
Investors have sufficient expectations for the Fed's interest rate hike path. We expect short-term Fed interest rate hike cycle to weaken the suppression of gold prices, and the short-term international gold prices may show consolidation fluctuations, . Since the RMB still maintains a tendency to depreciate against the US dollar, the RMB-denominated Au9999 has remained above 380 yuan/gram in recent years. internal performed significantly better than the foreign market. The pattern of strong inside and weak inside helps domestic investors to invest in gold.
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