Spot gold has fallen from its high in the past three weeks, and the restart of the rally must meet both conditions
On Monday (March 6), spot gold hit a high of $1,856.33 an ounce since February 15 before falling back as investors waited for Federal Reserve Chairman Powell’s upcoming testimony to Congress and the U.S. Department of Labor’s upcoming non-farm payrolls report for February , which may affect the prospect of the Fed raising interest rates.
At 20:19 Beijing time, spot gold fell 0.27% to $1,850.11 an ounce; the main COMEX gold futures contract rose 0.07% to $1,855.9 an ounce; the U.S. dollar index rose 0.05% to 104.588.
After aggressive rate hikes last year, the Fed returned to its usual cadence of 25 basis point rate hikes at its first policy meeting of the year. The Fed is expected to maintain this pace of rate hikes at its March policy meeting. However, a series of macro data released recently showed that the economy is resilient, and the market is worried that the Fed may return to the path of aggressive interest rate hikes.
Federal Reserve Chairman Jerome Powell’s testimony before Congress this week. On Friday (March 10), the U.S. Department of Labor will release the non-farm payrolls report for February. Investors hope to find clues that may affect the Fed’s future monetary policy direction.
U.S. inflation levels fell in the last quarter of 2022, but data for January this year showed that upward pressure on prices has picked up again. Other macro indicators, including the jobs data, suggest that the Fed’s rate hikes have so far done little damage to the economy.
Powell expected to echo colleagues
San Francisco Fed President Daly became the latest Fed official to sound hawkish on Saturday. She warned about the threat of inflation, saying that if inflation and labor market data continue to beat expectations, interest rates will need to rise and stay elevated for longer.
“It is clear that more work needs to be done, and further tightening, for longer, may be necessary in order to put high inflation concerns behind us,” Daly said in a speech at Princeton University.
Daly acknowledged that high inflation and the Fed’s aggressive policy actions to bring it down have caused panic on Wall Street. But she noted: “The market reaction has shifted from fears that aggressive action would tip the economy into recession to fears that the Fed won’t do enough to fight inflation.”
Daly said that concern led to market volatility every time new economic data was released, as the uncertainty caused investors to “look for answers immediately,” “but it will take time and a broader perspective to achieve our statutory targets.” She The Fed’s current tightening policy “was, and still is, appropriate because of the large and prolonged rise in inflation,” he said.
Markets largely expect Powell to show a hawkish tone in Congress this week, echoing recent language from other Fed officials. But given that his testimony comes before the February nonfarm payrolls report, he may keep all options open.
Economists at ING expect the dollar to remain range-bound, “Despite last week’s sharp rise in bond yields, equities continue to hold up well and provide a bit of support for pro-cyclical currencies. We expect the dollar to trade higher this week.” Continue to trade in the range, and it is expected to continue to trade in the 104.00-105.50 range, and the US news may be of concern.”
nonfarm payrolls data
The U.S. non-agricultural employment report for January released in early February showed that new jobs in the U.S. grew extremely fast, and wages continued to rise. That’s enough to convince investors that the Fed won’t see any reason to cut rates this year. Since then, the dollar index has risen about 2%.
Jane Foley, foreign exchange strategist at Rabobank, said: “Of all the risk events this week, the employment data will be the most important, and people need to confirm whether February continues the ‘long-term higher’ outlook, or whether it is an ‘anomaly in January employment, the economy May be slowing down’.”
Citi strategists expect any huge surprise upside in the non-farm payrolls data could lead to a 50 basis point rate hike by the Fed. Citi expects payrolls to have increased by 255,000 in February, following a gain of 517,000 in January.
Clarida, former vice chairman of the Federal Reserve and current Pimco economic consultant, pointed out: “Unlike the previous major interest rate hike cycles, the key to the Fed’s current cycle of interest rate hikes is communication… The U.S. economy may not have absorbed all the releases from Fed policy tightening. Influence.”
As such, this week’s U.S. non-farm payrolls report for February is crucial for traders. If the employment data is higher than expected, and Powell also echoes the hawkish stance of Fed officials, the dollar may resume a new rally.
Gold bulls and bears are in a wait-and-see state, and how nervous the follow-up will be depends on the face of the US non-farm payrolls data. If the February data is weaker than expected, it proves that the strong performance in January is abnormal. The strong economic data will make people question whether the United States has started the process of deflation and provide further evidence for gold bears.
Spot gold looks at $1864
On the daily chart, the price of gold may start an upward wave III from $1805. On the hourly chart, the price of gold started an upward (III) wave trend from $1,830, and the upper resistance looked at the 76.4% target of $1,860 and the 85.4% target of $1,864. The (iii) wave is the sub-wave of the upward ((i)) wave that started at $1805, and the ((i)) wave is the sub-wave of the III wave.
