During the Asian session on Thursday (November 10), spot gold fluctuated within a narrow range and is currently trading around $1,707.10 per ounce. Before the release of the U.S. CPI data for October, the market was in a strong wait-and-see mood. The price of gold rose and fell in the previous trading day. The Democratic Party avoided a big defeat. Control of the Senate will depend on the election of three very competitive seats. The dollar index rebounded from a low of nearly one and a half months, putting pressure on gold prices.
“I’m a little wary of gold ahead of the U.S. CPI data,” said Phillip Streible, chief market strategist at Blue Line Futures.
Economists expect the month-on-month and year-over-year growth in core prices to slow to 0.5% and 6.5%, respectively, slightly lower than in September, but still at historically high levels and well above the Fed’s 2% target. It will prompt the Fed to further raise interest rates and support the dollar. Before the data is released, it is slightly negative for gold prices.
Investors also need to pay more attention to the geopolitical situation in the near future;In the face of a Ukrainian offensive near the southern city of Kherson, Russian Defense Minister Sergei Shoigu on Wednesday ordered the withdrawal of his troops from the west bank of the Dnieper, a major retreat that could be a turning point in the war. The United States has already begun to put pressure on Ukraine, and there are some expectations of future peace talks in the market, which may suppress the safe-haven buying demand of gold.
In addition, the changes in the number of initial jobless claims in the United States will also be announced on this trading day, and investors need to pay attention; more importantly, many Fed officials will deliver speeches on this trading day, and investors need to pay attention to the future path of interest rate hikes and inflation expectations related information.
U.S. dollar index rebounded from more than 1-1/2-month lows on Wednesday
The dollar was higher against most major currencies on Wednesday, with the dollar index closing up 0.73% at 110.42, recouping all of Tuesday’s losses as the U.S. midterm election results so far failed to show the “red wave of the Republican sweep some had expected.” ” evidence that has investors turning their attention to the upcoming inflation data.
In addition, the Federal Reserve’s “number three”, New York Fed President Williams emphasized that long-term inflation expectations are relatively stable, and even talked about deflation concerns. The remarks also provided support for the dollar.
It should be reminded that the US dollar index has held the first-line support of 109.26, the low point in the past two months, and the K-line recorded a “engulfing” bullish signal at a relatively low level, and it is necessary to beware of the possibility of the US dollar regaining its rally.
However, Shaun Osborne, chief currency strategist at Scotiabank, said in a note: “Despite the dollar’s gains on Wednesday, the broader trend remains weak and we still feel that the dollar’s bull cycle is ending, with the currency more inclined to decline. “
U.S. Treasury yields fell Thursday
The yield on the 10-year U.S. Treasury bond bottomed out and rebounded on Wednesday, but during the Asian session on Thursday, the U.S. Treasury bond yield extended its decline and is currently down 1.11% to around 4.096, which is slightly bearish for gold prices.
Because the market has certain expectations that the Republicans will gain control of the Senate and House of Representatives, which will lead to a division of the congressional government. Investors expect Republican majorities in both chambers to undermine Biden’s ability to pursue an expansionary fiscal policy plan, a boon for the bond market.
Andrzej Skiba, head of U.S. fixed income at RBC Global Asset Management, said, “The Democrats have a slim chance of retaining their majority in both chambers. If so, Congress will have a greater ability to ease fiscally, which will have a negative impact on the Treasury market. Pressure, however, the chances of Democrats retaining control of the House of Representatives are very low, (there is still downside risk to U.S. bond yields).”
Gold ETF holdings on November 10: SPDR gold holdings flat
According to the data of gold ETFs on November 10, as of November 10, the gold holdings of SPDR Gold Trust, the world‘s largest gold ETF, were 908.38 tons, unchanged from the previous trading day.
Focus on the US midterm elections
Republicans made modest gains in the midterm elections, but Democrats outperformed expectations and control of the Senate will depend on three very contested seats.
Joe Manimbo, senior market analyst at Convera in Washington, said the strong showing from the GOP could support the idea of reducing fiscal support and potentially lower the Fed’s peak terminal rate, which would be negative for the dollar.
“The market is now in the process of turning the political page in preparation for Thursday’s inflation report,” Manimbo said.
Keep an eye on U.S. inflation data
Investors are awaiting Thursday’s U.S. consumer price index (CPI) data to see whether it will spur the Federal Reserve to continue raising interest rates well into next year to keep inflation in check, or whether they might ease policy tightening.
The dollar has retreated from multi-decade highs in recent weeks as investors took profits after a months-long rally and speculation the Federal Reserve may be edging closer to raising interest rates. Higher interest rates are good for the dollar.
“The inflation report could be a good litmus test to gauge whether dollar sentiment has softened materially,” Manimbo said.
Thursday’s CPI report is expected to show a year-on-year increase of 8%, a slight slowdown from September’s 8.3%, while the core CPI, which excludes food and energy prices, is expected to rise 6.5% year-on-year, down from 6.6% in September, but That was up from 6.3% in August.
“Unless the data is a huge departure from expectations, or well below expectations, which we don’t expect to be, it will just be a data point for the Fed to consider,” Jonathan Mondillo, head of North American fixed income at Abrdn, told the Global Markets Forum on Wednesday. (Fed Chair) Powell made it clear that they’re looking for more than just a data point before they hit pause or reverse course. It’s certainly an important data point, but given the upward trend in job growth, wage growth, consumption The Fed still appears to be going strong, and a lot of evidence is needed for the Fed to reverse course at this stage.”
The current futures market pricing shows that investors believe that the target range for the federal funds rate will peak at around 5.1% in June next year. As for whether to raise interest rates by 50 basis points or 75 basis points in December, the market is inclined to raise interest rates by 50 basis points. According to CME’s “Federal Reserve Watch”: the probability of the Fed raising interest rates by 50 basis points to the range of 4.25%-4.50% in December is 56.8%, and the probability of raising interest rates by 75 basis points is 43.2%.
On the whole, the rebound of the US dollar and the suppression of the strong resistance level of the 100-day moving average have weakened the upward momentum of gold prices, and the short-term gold price is facing the risk of further correction. Mark and support near 1687.90. It is expected that the Fed officials will further “escort” the path of slowing interest rate hikes, and the correction space of the gold price will still be limited, and the market outlook will still have the opportunity to surge higher.
Hotspot Supplement 1: The hopes of the Republican “red tide” are dashed, and there is still suspense about who will control the US Congress
Republicans made gains in the U.S. midterm elections, but Democrats outperformed expectations. Control of the Senate hinges on the results of three elections, which remained very tight as of Wednesday afternoon.
Democratic incumbent Sen. Raphael Warnock and Republican Herschel Walker will decide on Georgia’s Senate seat in the Dec. 6 runoff, according to Edison Research. That means control of the Senate could be weeks away unless Democrats overcome their Republican challengers in Nevada and Arizona.
Edison Research predicts that Republicans have gained at least eight seats in the House. That would be three more seats than needed to wrest control of the House of Representatives from Democrats. But with the results of the 44-seat election still to be announced, the GOP lead could widen or narrow, and it may not be clear for days.
Even a narrow House majority could enable Republicans to block legislation and launch potentially politically damaging investigations during the next two years of Democratic President Joe Biden’s term.
But the Republicans appear to be far short of the sweeping “red wave” victory they had sought, and the Democrats have avoided the usual midterm defeats of the ruling party.
The election results appeared to show voters punishing the economy that has been hit by inflation under a Biden presidency, while also pushing back against Republican efforts to ban abortion and question the election counting process.
The poor performance of some Trump-backed candidates, including Walker, shows Americans are tired of the chaos the former president has instigated, casting doubt on the viability of his possible 2024 presidential bid.
As of Thursday evening Beijing time, only 26 of the 53 most contested elections had been decided, and it could take some time before the final outcome was clear, according to an analysis of nonpartisan forecasters.Democrats won 20 of these 26 elections
Hotspot Supplement 2: The Federal Reserve’s “Number Three”: Williams emphasized that long-term inflation expectations are relatively stable, and even talked about deflation concerns
New York Fed President Williams, the Fed’s “number three,” on Wednesday welcomed relatively stable long-term inflation expectations, while expressing confusion over data showing a significant number of Americans expect price pressures to subside outright at some point.
“The importance of keeping inflation expectations firmly in check is a fundamental tenet of modern central banks, but what exactly that means and how to test it has been open to interpretation,” Williams said in a speech in Zurich. “The news has been mostly good — U.S. long-term inflation expectations have been remarkably stable at levels roughly in line with the FOMC’s long-term goals.”
Williams, who is also vice chairman of the Federal Open Market Committee (FOMC), did not comment on monetary policy or the economic outlook during his remarks. He touched on the prospect of price pressures, and the Fed has been aggressively raising interest rates in recent months in an effort to bring down inflation, which is at a 40-year high.
Uncertainty about the inflation outlook has risen, Williams said, and according to recent data, “a surprising situation that deserves further study is the growing divergence of views on future inflation, including those who expect deflation to occur. is high and what does that bode for the future.”
Analysts at BMO Capital Markets said Williams’ upbeat view on inflation expectations could signal a shift in his expectations, adding that it was “notable” to see a FOMC vice chair talk about rising deflation expectations
Fed officials have long argued that public expectations about future price pressures have a big impact on inflation today, and many private economists agree. Officials have also repeatedly pointed to the relative stability of long-term inflation expectations as a vote of public confidence that the Fed will invest in bringing inflation back to target at some point.
Deflation, which refers to falling price pressures, has raised concerns about a somewhat surprising outlook when inflation is high and there are few clear signs of abating.
A New York Fed paper published last month said public expectations for deflation have been rising this year. The paper’s authors view the unexpected development in a positive light, saying those who hold this view are “more likely to be optimistic about the outlook for the economy.”
“My own assumption is that we are at the end of the (inflation upswing) … not at the front,” Richmond Fed President Thomas Barkin said on Wednesday. “Commodity prices appear to be pulling back. The supply chain appears to be easing, excess spending is reducing, the Fed is raising rates, doing what we need to do.”
Hotspot Supplement 3: Russia ordered a retreat from Kherson, which may become a turning point in the Russian-Ukrainian war
In the face of a Ukrainian offensive near the southern city of Kherson, Russian Defense Minister Sergei Shoigu on Wednesday ordered the withdrawal of his troops from the west bank of the Dnieper, a major retreat that could be a turning point in the war.
Ukraine reacted cautiously to the announcement, saying some Russian troops were still in Kherson.
Mykhailo Podolyak, a senior adviser to Ukrainian President Volodymyr Zelensky, said in a statement: “It is pointless to talk about Russia’s withdrawal until the Ukrainian flag is flown over Kherson.”
The city of Kherson is the only regional capital Russia has seized since the February invasion, and giving up such a strategic gain would be a major setback for what Moscow calls a “special military operation” in Ukraine.
Kherson is the main city in the region of the same name, and President Putin announced in September that he would “permanently” incorporate four regions into Russia, including the Kherson region, which Moscow says are now under its nuclear umbrella. Down.
In television footage, General Sergei Surovikin, who was in full command of the war, reported to Shoigu that it was no longer possible to supply the city of Kherson. He said he suggested establishing a defensive line on the east bank of the Dnieper.
Shoigu told Surovikin, “I agree with your conclusions and recommendations. For us, the lives and health of Russian servicemen are always a priority. We must also take into account the threat to the civilian population. Keep retreating and take all measures, Ensure the safe transfer of personnel, weapons and equipment across the Dnieper.”
At 10:24 Beijing time, spot gold is now at $1,706.60 an ounce.