On Wednesday (October 19), spot gold expanded its decline in the past two weeks, hitting a new low of $1,631.72 per ounce since September 28, as the Federal Reserve has reason to continue the aggressive interest rate hike policy and is always ready to adjust interest rate expectations based on economic data performance, and the US dollar strengthens sharply again.
Beijing time at 19:54, spot gold fell 1.08% to $1634.09/oz; the main contract of COMEX gold futures fell 1.02% to $1638.9/oz; the dollar index rose 0.79% to 112.912.
As inflation remains high, it is generally expected that the Fed will raise interest rates by 75 basis points for the fourth consecutive aggressively at its policy meeting in November. Interest rate futures traders also bet that the Fed will raise interest rates significantly again in December.
The Fed does not want investors to believe that its determination to fight inflation has begun to collapse. If market participants think so, financial conditions may ease, making credit cheaper and easier to obtain, which is clearly contrary to the Fed’s goal.
Kashkari hints: The Fed is ready to go further at any time
Minneapolis Fed Chairman Kashkari said on Tuesday (October 18) that the Fed may need to push its benchmark policy interest rate above 4.75%. His remarks show that the Fed is ready to go further.
Based on forecasts released last month and comments published by some Fed officials since then, most Fed policy makers expect to increase policy rates from the current 3%-3.25% to 4.5%-4.75% early next year.
Kashkari said: "I have publicly stated that it is easy for me to see interest rates rise to the median range of 4%-5% at the beginning of next year, but if we suppress potential inflation or core inflation fails to make substantial progress, I don't understand why I advocate that interest rates should stay at 4.5%-4.75% or similar levels."
data shows that despite the Fed's sharp interest rate hikes this year, potential inflation is still rising, not falling so far. Economists estimate that the core personal consumption expenditure (PCE) price index, which the Fed is closely watching, has risen 5.1% year-on-year last month, up from 4.9% in August. Last month, Fed policymakers expected core PCE to be 4.5% by the end of the year.
Given that inflation still has upward risks, the Fed's currency tightening seems far from over, and gold prices will continue to be in an overall downward trend. Unless the Fed makes it clear that when will the rate hike end, it will be difficult for investors to recover their confidence in gold.
Strong labor market is expected to provide buffering
rating agency Fitch said on Tuesday that strong labor market and consumer demand are expected to buffer the impact of the potential U.S. recession in 2023. Consumer spending will drive the US real GDP to moderately expand in the second half of 2022, with a quarterly increase of about 0.3%.
Atlanta Fed Chairman Bostic said Tuesday that the U.S. labor market is still adapting to new wage and career trends that are caused by the pandemic as big corporations raise wages and attract workers to stay away from low-paying jobs.
As the Fed tries to fight high inflation, Bostic outlines a possible problem that may persist, “…the economic activity restarted after the pandemic has seen many tensions and imbalances including high workers’ resignation rates, high employer job openings, and strong wage growth, and we must overcome all of them.”
The U.S. employment cost index continues to rise rapidly, which may put pressure on service prices as restaurants and healthcare providers try to pay for rising labor costs, while higher wages can help consumers maintain and expand consumption.
But if workers think that the labour costs of enterprises will increase steadily, they may demand a larger pay increase each year. The company expects wages to rise and believes consumers won’t be shocked by the price increase, so they may raise their selling prices more significantly and more frequently. High inflation may become a long-term stale disease, and the US economy will pay a heavy price. TD Securities strategists report that the prospect of a massive rate hike in the Federal Reserve will put pressure on gold when the inflation expectations are high."In this round of interest rate hike cycle, the continued high inflationary heat has imposed constraints on the Fed, which means that the restrictive interest rate system may last longer than at any stage in history. With the deteriorating economic growth prospects, gold prices are unlikely to rise unless the Fed makes progress in fighting inflation. The U.S. wage growth trend confirms the recent household inflation expectations, but the CPI expectations seem to have remained stable at the 5%-6%, far higher than the 2.5% target set by the Fed. Therefore, don't expect investors to increase their interest in gold."
spot gold is looking at $1,610 under
-day online, the downward iii wave of gold prices starting from $1,729, falling below the 38.2% target at $1,655, and the 61.8% target at $1,610 under the market. The iii wave is a sub-wave of the downward (iii) wave that started from $1,808, and the (iii) wave that is affiliated with the downward ((iii)) wave that started from $2,070. On the hourly chart, gold prices are expected to temporarily support around US$1,636, which is 80.9% of the upward range of US$1,614-US$1,729 Fibonacci retracement.
