Home » Golden Week Review: 31 years of great inflation is here! Gold prices rose for seven consecutive times, Fed officials still calm down on provider FX678

Golden Week Review: 31 years of great inflation is here! Gold prices rose for seven consecutive times, Fed officials still calm down on provider FX678

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© Reuters. Golden Weekly Review: 31 years of great inflation is here!Gold prices rose for seven consecutive times, Fed officials remain calm

Spot gold rose 2.56% to US$1,864.90 per ounce this week. The gold price has now achieved seven consecutive rises, mainly supported by high inflation. However, the strength of the US dollar index and the market’s expectation of the Fed to raise interest rates in advance may drag down the price of gold. In addition, Fed officials seem to be more willing to wait and see for a while on the issue of interest rate hikes.

Inflation hit a 31-year high, gold rose strongly

Earlier data showed thatOctober CPI rose 6.2% year-on-year, the largest year-on-year increase in 31 yearsFor example, the prices of food, energy, rents, and automobiles have risen sharply, although the Fed had previously expected that the rate of increase in automobile prices would slow down as the “bottleneck” of the global supply chain caused by the epidemic was eliminated.

However, strong consumer demand in the United States has caused these “bottlenecks” to not disappear, and inflation indicators aimed at eliminating the effect of a one-time surge in the prices of goods and services are also rising.

Gold has been continuously supported by buying orders seeking to fight inflation this week, and it has rarely seen a five-day streak.

(Spot gold daily chart)

ActivTrades senior analyst Ricardo Evangelista wrote in a report: Gold is a good hedge against inflation, so rising consumer prices will provide support for gold prices.

Craig Erlam, senior market analyst at Oanda, said that before the US inflation report was released, the price of gold had risen because traders were investing in gold as a safe haven when faced with a possible rise in inflation.

Juan Carlos Artigas, head of global research at the World Gold Council (WGC), said that the sharp rise in wages and supply chain disruptions, especially those related to the transportation industry, have been supporting the rise in inflation.

“Looking forward, we believe that there is a great risk of high inflation continuing, because this is a side effect of the chain effect after the implementation of monetary and financial policies in the post-epidemic period. This inverse effect should support gold’s safe-haven investment demand.”

Analyst: Inflation is expected to be more durable so that gold has a chance to exceed $2,000

DailyFX analyst Warren Venketas said that for most of this year, gold has been an inconspicuous small role, but now it has renewed its brilliance and rebounded above the record high of $2,000 set in 2020.

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As the market prepares for the Fed’s December monetary policy meeting, US inflation and employment data have become the focus of attention, and gold prices have a good upside.

Venketas said that inflation is a big problem. If inflation expectations outperform yields, a year-end rebound may occur. I am very optimistic at this point.

He pointed out,Technically speaking, gold is in the perfect state of a bull market rebound. And inflation that is hotter and longer-lasting than expected will help push prices up.

Venketas believes that there are very good reasons for the price of gold to rise at the end of the year, and the second round of the rise will continue until the second half of 2022. Inflation will continue for the next 6 months or so. It is temporary, but it will last longer than initially predicted.

As gold catches up with other alternative assets,The price of gold may reach more than US$2,000 next year.

Venketas pointed out that a major competitor to the performance of gold prices is Bitcoin. People have been flocking to cryptocurrencies as a potential inflation hedge, which has weakened the attractiveness of gold.

he thinks,By the end of this year, the price of gold will climb to $1916.

The analyst also said that the more inflation continues, the greater the increase in gold prices. Because historically, relative to short-term performance, when inflation is more persistent, the price of gold will go higher.

The U.S. dollar index hits a 16-month high, threatening the rise of gold prices

The U.S. dollar index hit a 16-month high in early Asian trade on Friday, with a weekly rise of 0.86%, the largest weekly gain since the week of June 20.

(Daily chart of U.S. dollar index)

The U.S. dollar broke through the two-month trading range this week, and analysts predict that it will rise further, and the appreciation of the U.S. dollar will drag down gold and other U.S. dollar-denominated assets.

Shaun Osborne, chief foreign exchange strategist at Scotiabank, said that the market is still “obviously concerned about inflation.” He said this “should mean that the dollar is still relatively well supported.”

A strategist at Mizuho Bank said: “We don’t think this is the end of this wave.The U.S. dollar is expected to remain strong from now to the first half of 2022, Because the Fed’s reduction in debt purchases will end in the first half of 2022, and interest rates may be raised thereafter, which will provide support for the US dollar during this period. “

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Affected by inflation data, U.S. bond yields also rose sharply this week.

Inflation is hot, the Fed may raise interest rates early

In the United States, inflation accelerated in October, the largest year-on-year increase in 31 years. Traders questioned the Fed’s “temporary theory” of inflation, and the market bet that the Fed would raise interest rates ahead of schedule.

The current market pricing shows thatThe Fed is expected to raise interest rates for the first time before July next year, and raise interest rates again before December.

According to FedWatch data from the Chicago Mercantile Exchange (CME),At that time, the probability of raising interest rates was 50%, while the probability of digestion a month ago was less than 30%.

Vassili Serebriakov, a foreign exchange strategist at UBS, said: “The path of least resistance in the short-term seems to be a higher dollar…Strong inflation weakens the theory of transitory, which means the Fed may need to tighten monetary policy sooner.”

Traders said that the unexpected U.S. inflation data heated up the Fed’s early interest rate hike expectations, and the U.S. index rose above the 95 mark.

The Fed has stated that it is unwilling to raise interest rates until more people unemployed due to the epidemic return to work, even if the inflation rate is “over a period of time” higher than its official target of 2%.

The Fed still hopes that inflation will ease over time, without the need to raise interest rates to cool the economy, And face the risk of slowing down or reversing employment growth in the process.

But the longer the inflation data exceeds expectations, the harder it will be.

Some experts said that if the Fed will be forced to raise interest rates at a faster rate than expected, and the U.S. dollar will rise with it, the gold price increase may be limited.

Analyst Ricardo Evangelista said that the timing of the Fed’s rate hike is different from market estimates, giving the US dollar room for further gains, thereby limiting the rise of gold.

Fed officials are generally cautious about interest rate hike expectations

This week, Fed officials showed up to speak intensively, but they were generally cautious about raising interest rates and were not as hawkish as the market expected.

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Fed Vice Chairman Clarida said on Monday that as employment returns to pre-epidemic levels and inflation rises above comfortable levels,The U.S. economy may reach the Fed’s interest rate hike threshold by the end of next year

Fed Vice Chairman Clarida said that although the Fed is “some distance from considering raising interest rates”, if his current expectations for the economy prove to be correct, the economy “will meet the target range for raising the federal funds rate by the end of 2022. Necessary conditions”.

Chicago Fed President Evans reiterated his view on Monday thatThe current surge in inflation is largely “temporary”As the supply pressure is resolved, inflation will subside, but it sounds like he is not as confident in this statement as before.

Minneapolis Federal Reserve Chairman Kashkari said on Tuesday that he expects that the economic outlook will be clearer when the Fed ends its bond purchase program in mid-2022, and he is “open” to the timing of subsequent interest rate hikes.

Kashkari said at an event: “I haven’t decided on my position in this regard.” He had previously said,He believes that the Fed may not raise interest rates, which are currently close to zero, until 2024.

San Francisco Fed President Daly said on Tuesday,The true state of the labor market and the outlook for inflation will not become clear until mid-2022.And urged to be patient in policy during this period.

She said that due to the large uncertainty in the labor market and the new crown epidemic is still the main culprit behind the current surge in inflation, the best way to do so is to “stay the boat” and remain vigilant.

But the St. Louis Fed President Brad is an exception, he said on Monday,He expects that the Fed will raise interest rates twice in 2022 after ending its bond purchases in the middle of next year, but he said that if necessary, the Fed can speed up the reduction schedule and end the action in the first quarter.

He said again on Tuesday that if inflation continues, the Fed may need to speed up its actions.

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