Spot gold has hit a new low in a week and a half, the US index has risen for three consecutive days and the prospect of an interest rate hike by the Fed could confirm this view
Spot gold fell for a fourth consecutive trading day on Monday (Nov. 21), hitting a one-and-a-half week low of $1,736.88 an ounce, while the US dollar index rebounded for a third day of consecutive trading, touching a six day high of 107.903. Investors awaited the minutes of the upcoming Fed meeting for any hints on the interest rate outlook.
As of 19:39 Beijing time, spot gold fell 0.54% to $1,740.08 an ounce; the main COMEX gold futures contract fell 0.72% to $1,741.7 an ounce; the US dollar index rose 0.69% to 107.746.
The Fed will release the minutes of its November meeting on Wednesday (November 23).Some Fed officials recently made hawkish comments and the dollar has regained its upward momentum. These remarks also cooled expectations of near-term Fed policy change.
FXStreet’s Eren Sengezer said:“The Fed is about to release the minutes of its October policy meeting. Gold could get a boost if the Fed confirms the intention of policymakers to opt for a modest rate hike at the last policy meeting of the year.”
“We’re not forecasting a recession, but that doesn’t mean there’s no risk of a recession,” said Stephen Miller, director of research at UNLV’s Center for Business and Economic Research (CBER). ) try to keep the economy going and inflation low, “without causing a recession”.
Bostic: The final level of interest rates could be higher than expected
Atlanta Fed Chairman Bostic has become the latest Fed official to look aggressive. He said on Saturday (Nov. 19) that the Fed was ready to “abandon” a 75 basis point rate hike at its December meeting but expected the Fed to raise interest rates again by 0.5 percentage point.
But Bostic also pointed out that the “lending rate” could be higher than currently expected, judging by the surprise trend in inflation over the past year. It will be flexible in thinking about the appropriate policy stance and pace of rate hikes. “If the economic situation develops as I expect, I think it will be necessary to raise interest rates by 75-100 basis points. I believe that the implementation of this level of policy rate will be sufficient to control inflation in a time frame reasonable”.
Bostic stressed that at some point the Fed will have to suspend its rate hikes to fully assess the performance of the economy. Because Bostic estimated the impact of the Fed’s rate hike could take 12 to 24 months to “fully materialize.”
Fed policymakers appeared eager to point out that while they may have been pleased with October’s lower inflation data, the single number doesn’t tell the story and more evidence is needed to justify a slower pace of tightening. Fed policymakers may also be determined not to accept it publicly, for fear that the market is expecting too much.
Michael Langford, director of business consultancy AirGuide, said:“Investors remain highly focused on the rate cycle, with recent statements from Fed officials reigniting bearish sentiment on ( ).”
With recent hawkish rhetoric from Fed officials, even from former “dovish” figures like San Francisco Fed Chairman Daly, it wouldn’t be surprising if the dollar resumed its rally before the end of 2022.
The US could narrowly avoid a recession
Fears among consumers and economists that the country had entered a recession intensified in July when news emerged that US gross domestic product (GDP) contracted for the second straight quarter. The unofficial definition of a recession is two consecutive quarters of falling gross domestic product, which some economists say the country has entered.
While the federal government’s efforts to reduce inflation have been slow to stem rising costs, low-income consumers have been hit by steep price hikes over the past year, especially for food and fuel.
But a tight job market benefits workers looking for new or better jobs. The labor market remains strong and the US economy, which has not yet officially entered a recession, looks more complicated due to historically low unemployment.
Goldman Sachs economists expect the US to narrowly avoid a recession next year as the European economy contracts, “expecting global growth of just 1.8% in 2023 as the US economy’s firmness contrasts with the recession in Europe”.
Goldman Sachs economists said: “The US should narrowly avoid a recession as core PCE inflation slows from 5% now to 3% by the end of 2023 and unemployment rises by 0.5%. The economy is growing below potential and we currently see another 125 basis point rate hikes from the Fed to a peak of 5-5.25%. The Fed is not expected to cut rates in 2023.”
Standard Chartered Bank economists expectIn the coming weeks, the dollar could see a short-term bounce. US labor market still strong and retail sales continue to point to strong economic fundamentals. Fed policymakers have also stressed the need to keep raising rates for now. The strength of the dollar is not over yet. From a technical point of view, the dollar looks oversold, while the euro and the pound (the main components of the US dollar index) look overbought. This raises the possibility of near-term consolidation, with the dollar likely to rebound if November’s labor market and inflation data unexpectedly rise.
Kit Juckes, economist at Société Générale, said:“The liquidation process before the end of the year is likely to have officially begun. The dollar is higher due to stronger US economic growth, higher interest rates and worries about a geopolitical crisis. 2022 it’s almost a perfect storm in favor of the dollar.”
Spot gold looks at $1725
On the hourly chart, gold price ends wave III at $1786 and starts wave IV. Bottom support looks to the 38.2% Fibonacci retracement of wave III at $1740 and the 50% Fibonacci retracement at $1725. Wave iii and potential wave iv are secondary waves of the bullish wave (i ) started at $1616.
