Spot gold has risen four times in a row, the FED hawks are not confident enough, and the bulls hope that the data will be strong
On Thursday (February 9), spot gold rose for the fourth consecutive session, as the U.S. dollar index weakened again. While several Fed officials said further rate hikes were needed to curb inflation, none suggested the central bank would return to a more aggressive monetary policy stance. Gold prices are expected to be range-bound in the near term as traders await new economic data for clues on the path of future rate hikes by the Federal Reserve.
At 20:00 Beijing time, spot gold rose 0.37% to $1,882.33 an ounce; the main COMEX gold futures contract rose 0.17% to $1,893.9 an ounce; the U.S. dollar index fell 0.52% to 102.939.
Market participants await next week’s U.S. consumer price index (CPI), which could provide more clues about the Fed’s policy path. Chairman Jerome Powell said earlier this week that interest rates may need to rise if the U.S. economy remains strong, but reiterated that “deflation” was on the way.
Ajay Kedia, Director, Kedia Commodities Mumbai said:“Less hawkish comments from Federal Reserve Chairman Jerome Powell have made gold slightly more attractive. But the gold market will remain range bound ahead of next week’s inflation data. If inflation continues to rise, it will suggest that the Fed may take longer To pause rate hikes, that will put pressure on gold.”
With the impossibly strong U.S. employment data for January – adding 517,000 jobs and the unemployment rate falling to a 53-1/2-year low of 3.4%, the Fed may have to raise rates further to better balance demand and supply.
Fed officials hawkish lack of confidence
Several Federal Reserve officials said on Wednesday (February 8) that further interest rate hikes are likely, but none were prepared to suggest that a fiery January non-farm payrolls report might prompt them to return to a more aggressive monetary policy stance.
“We don’t think last week’s (non-farm payrolls) data accurately reflected the U.S. economy. The U.S. economy is not booming, although it’s clearly not on the brink of recession either,” wrote Columbia Threadneedle Investments economist Steven Bell on Wednesday.
Waller: Wage growth isn’t low enough
Fed Governor John Waller said inflation appeared set to continue to slow this year, but the Fed’s struggle to hit its 2 percent target “could protract” as monetary policy tightens for longer than expected. While wage growth has slowed, the decline has not been enough and the Fed will need to maintain a tight monetary policy stance for some time.
Waller said: “There are signs that food, energy and housing prices will slow down this year, and the Fed’s rapid rate hikes have begun to pay off. But I don’t see … The economic data is declining rapidly, and I am prepared to fight a longer battle The battle. While we have made progress in reducing inflation, I want to make it clear that the job is not done.”
Waller pointed out that the unexpectedly strong increase in jobs in January indicates that the economy remains healthy, but it also means that labor income will also remain strong and boost consumer spending, which may keep upward pressure on inflation in the coming months.
Forecasts released by the Fed in December showed policymakers expect the federal funds rate to rise to a peak of 5.00% to 5.25% this year from the current range of 4.50% to 4.75%. Waller has been advocating more aggressive rate hikes, but backed the central bank’s decision to raise rates at a pace of 25 basis points each starting this year.
It may take a few more rate hikes by the Fed to fully beat inflation, but that’s anyone’s guess.Any fears of an aggressive Fed rethinking behind the jobs data seemed outrageous, with the result that the gold market has returned to wait-and-see mode, with prices trading in a range of around $25 over the last four sessions.
slow rate hikes
New York Fed President Williams said raising the federal funds rate to a range of 5.00% to 5.25% seems like a very reasonable view of how we can ease the supply-demand imbalance this year. He added that the Fed is likely to move forward at a smaller pace this year than it did with most rate hikes last year.
Williams stressed that interest rates are “barely entering restrictive territory” and that rates need to remain “restrictive for several years to ensure that inflation is kept at 2 percent”. But he did not suggest that January’s jobs data would necessarily change the outlook for rate hikes.
“A smaller rate hike is appropriate as we assess the economic and inflation impact of continued policy tightening,” Fed Governor Lisa Cook said in a speech at the Joint Center for Political and Economic Research.
Cook also said last month’s strong job growth coupled with slowing wage growth has raised expectations of a “soft landing” in which the central bank can curb inflation without triggering a recession. She added that she believed the central bank’s job of bringing inflation back to its 2% target “can be done without a significant rise in unemployment”.
Financial markets last month scrutinized the U.S. labor market’s realization and stopped fighting the central bank after sweeping doubts about the Fed’s policy guidance. They now agree that the Fed will raise rates to just above 5 percent in the first half of the year.
Huw Roberts, head of analytics at Quant Insight, said,According to his firm’s models, gold is slightly overvalued. At recent highs, gold traded about 6.5% above its fair value, he added.
Roberts added that while the correction cooled the market a bit, the bullish macro environment is starting to shift, which could continue to weigh on gold in the near term. “Our macro guaranteed fair value is $1,822, so there is room for further price declines.”
Spot gold is still looking at $1896 in the short term
On the daily chart, the price of gold started a three-wave upward trend from US$1860, and the upper resistance looked at the 23.6% target at US$1896. Wave 3 is a sub-wave of the upward (3) wave that started from $1796, and wave (3) is a sub-wave of the upward ((3)) wave that started from $1725.
