On Wednesday (October 5), spot gold fell, breaking away from the overnight high of $1,729.35 per ounce since September 13, and is expected to end the previous six-session rally, as the U.S. dollar index rebounded and market sentiment was in the U.S. Be cautious ahead of the data release. The U.S. labor market has shown signs of weakness recently, and some institutions believe that this may not be enough to force the Fed to slow interest rate hikes, but inflation will fall faster than Fed officials expect.
At 19:24 Beijing time, spot gold fell 0.94% to US$1709.81 per ounce; the main COMEX gold futures contract fell 0.70% to US$1718.4 per ounce; the US dollar index rose 0.63% to 110.873.
The U.S. index closed down more than 1.3 percent overnight, its biggest one-day drop since March 2020, after a government survey released overnight showed U.S. job vacancies fell by the most in nearly 2-1/2 years in August, suggesting the labor market is cooling.
Investors’ expectations for how much the Federal Reserve will raise interest rates to fight inflation have slipped in recent days amid signs that U.S. economic growth may finally slow. Investors in the futures market now expect the federal funds rate to peak at 4.5% next year, up from last week’s forecast of around 4.7%.
Policy needs to change?
A larger-than-expected drop in job vacancies in August was seen as the latest evidence of a gradual slowdown in the U.S. economy and suggested that high inflation pressures may improve, the Federal Reserve may not be as aggressive in the future as it has been in the past few months, and the upward pressure on the dollar has weakened.
The September ADP employment report in the United States will be released at 20:15 Beijing time on Wednesday, and employment is expected to increase by 205,000. It is followed by the US September non-farm payrolls data to be released this Friday (October 7).
City Index analyst Matt Simpson said,At present, the market is very sensitive to the employment data. “If the ADP data falls short of expectations, traders may assume that the non-farm payrolls in September will not perform well and be bearish on the dollar, because traders have recently begun to bet on a Fed policy shift, which in turn is conducive to a stronger gold.”
The outlook for gold prices hinges on upcoming U.S. jobs data, which is expected to provide a clearer picture of how much the Federal Reserve will raise interest rates in November.According to CME Group’s “FedWatch” tool, markets are pricing in a more than 65% chance that the Fed will raise interest rates by 75 basis points for the fourth consecutive time next month.
Fed officials continue to stress primary responsibility
Consumer- and market-based measures show that U.S. inflation expectations are falling steadily and significantly. The breakeven inflation rate in the 2-year to 20-year range fell to 2.15% on Friday (September 30), the lowest level in a year and a half; since the Fed raised interest rates by 75 basis points last month, U.S. bond yields And implied rates have fallen by as much as 50 basis points.
Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, said: “There is a growing belief that financial markets are showing enough pressure to turn away from policy tightening.”
Investors, after nearly a year of market turmoil, hope that recent signs of wobbly economic growth will force the Federal Reserve to slow its punitive rate hikes on the market. But the message some Fed officials continue to send to investors is that fighting inflation remains their top priority and they are not done raising rates.
Jefferson: Fighting inflation is top priority
Fed Governor Ferson reiterated overnight that fighting inflation is a top priority for policymakers, even though growth will suffer, “It may take some time to restore price stability and it may take a period of below-trend growth. I promise, I and I Our colleagues are determined to reduce inflation to 2% … we are committed to taking further necessary steps.”
Jefferson also said there was reason to think that labor market tensions had eased, “which could help ease wage growth. And signs that supply bottlenecks are finally starting to be resolved could also help slow the pace of price increases.”
But Jefferson wasn’t sure how that would play out. “Inflation is still high, that’s my biggest concern, and it’s taking a heavy toll on households and businesses, and everyone is feeling the effects. “
Analysts at Capital Economics wrote,Job openings data showing signs of labor market weakness may not be enough to reassure the Fed to slow the pace of rate hikes, “will not deter further sharp rate hikes in the near term … but it supports our view that inflation will be higher than the Fed’s Officials expected a quicker fall.”
Daly: Concerned about side effects of dollar appreciation
San Francisco Fed President Daly said the Fed has anti-inflation tools and will use them, with “a lot” of room to reduce demand and ease price pressures by raising interest rates, noting excess demand is the main reason for the current high inflation.
“If we do our job well and we communicate to the public why we are doing what we are doing and why the current rate outlook is necessary to bring inflation down, and price stability is very important to us, because This is being done as gently as possible so that the economy can be in equilibrium as easily as possible, and no matter what it looks like, we’re going to take the easiest path we can find.”
Surveys show Americans don’t expect inflation to stay high for long, and the anchored inflation expectations prove Americans already trust the Fed. “I think as inflation goes down, trust goes up,” Daly said.
Daly added that despite the recent volatility in markets over the past few weeks, “we still have a healthy, stable financial system.”
Daly said,The Fed is concerned about the impact of the appreciation of the dollar and rising U.S. interest rates on global economic growth,Because slowing growth abroad can in turn weigh on growth at home, “we have to take that into account so that we don’t end up with excessive policy tightening.”
Spot gold at $1737
On the hourly chart, the price of gold has started an upward iii-wave trend from $1,641, approaching the 185.4% target of $1,730, and further looking at the 200% target of $1,737. Wave iii is a sub-wave of the up (i) wave that started at $1615.