On Monday (September 20), spot gold rebounded after hitting a low of more than five weeks, but the bearish trend remained unchanged. The bears are paying close attention to the Fed’s policy meeting this week to prepare for the Fed’s further signal to reduce bond purchases. Some economists believe that people’s attention to reducing the scale of debt purchases is a bit too much.
At 19:32 Beijing time, spot gold rose by 0.16% to US$1757.18 per ounce; the main COMEX gold contract rose by 0.33% to US$1757.5 per ounce; the US dollar index rose by 0.13% to 93.370.
The price of gold fell to a new low since August 12 to $1,742.38 per ounce, and the U.S. dollar index rose to a new high since August 23 to 93.455.
The Fed is expected to start the withdrawal within the year
Traders are now focusing on the Fed policy meeting this week. The current market consensus is that the Fed will further signal that it insists on starting to reduce the scale of bond purchases during the year. However, in the face of uncertainty, the Fed will also link any actual policy changes with the employment growth in the United States in September and beyond.
The Fed will conclude its two-day policy meeting on Wednesday (September 22). The results of the meeting will include the release of new economic forecasts and interest rate dot plots. These forecasts will cover data from the unstable period of the summer, including weak non-agricultural employment recovery, high inflation, and a surge in new crown infections and deaths that exceeded last summer.
Westpac analyst Imre Speizer said,Benefiting from the expectation that the Fed is about to reduce asset purchases, “The U.S. dollar is rebounding slightly. Everyone is paying attention to the Fed, waiting for its signal to gradually reduce debt purchases.”
For most of the past few months, inflation has also been higher than expected. Some officials said that the end of bond purchases should not be later than early next year. Some Fed officials, including Governor Waller, hope to reduce as soon as possible, believing that current debt purchases will not help promote employment, and that if interest rates are kept low for a long time, housing or other asset bubbles will be risky.
Marshall Gittler of the brokerage firm BDSwiss said that only two Fed members can change their views on the median forecast of the “dot plot” to reflect next year’s interest rate hike. Raise interest rates at least once.”
An OCBC Bank analyst said,Traders will use the dot plot to predict the Fed’s 2022 interest rate level. The dot plot may indicate that the Fed’s hawkish lineup will be further expanded, and the policy-makers’ comments on the dollar’s favor will continue.
Complexity affecting employment recovery
Fed officials, including Chairman Powell, have said that the Fed may reduce its monthly bond purchases by US$120 billion later this year as the first step to end the crisis-period policies implemented during the spring of 2020 when the new crown epidemic occurred.
But after the year-long performance continued to be stronger than expected, the performance of the US employment recovery in the last two months has been significantly lower than expected. The unexpected addition of 235,000 non-agricultural jobs in August, coupled with a slight slowdown in the upward momentum of inflation, may weaken the Fed’s sense of urgency to accelerate its actions.
Such surprises, especially the disappointing August employment report, will be taken as a consideration when discussing when the Federal Reserve begins to cut debt purchases at its September meeting. This dilemma also adds to the weight of the next US employment report to be released in early October.
William English, a professor at the Yale School of Business and a former Fed official, said: “If (employment) growth slows down a lot, it will be difficult to have the enthusiasm to start reducing debt purchases. They will want more data. If the data is disappointing, you can imagine They will eventually wait… This is a tricky statement. They want to open the door, but they can’t promise.”
Tim Duy, chief U.S. economist at SGH Macro Advisors and professor of economics at the University of Oregon, said that this policy divergence means that the Fed will want to retain various options in the coming weeks during a period when economic data is shifting from frightening to optimistic. .
Fed officials are expected to keep their options open, that is, if job growth rebounds and the risk of the epidemic subsides, they will be prepared to decide to reduce bond purchases at the November policy meeting as soon as possible, and push the price of gold further down; but if the epidemic hinders recovery, they will It can also postpone the reduction of debt purchases, and the price of gold may not drop to $1,700 in the short term.
The market is overly concerned about reducing debt purchases?
The current risk to the economic outlook is the new crown mutant strain Delta. Employment data to be released in October may show whether the impact of the new crown mutation strain Delta is deeper than Fed officials expected earlier in the summer. However, some economists believe that people’s attention to the discussion of reducing the scale of debt purchases has been overdone.
David Wilcox, former head of research at the Federal Reserve and now a senior fellow at the Peterson Institute for International Economics, said: “The macro risk surrounding this timing is quite low. What’s important is that we can infer how they interpret the inflation situation. They may want to Before raising the (fed funds) interest rate, are they eager to end the bond purchase plan in time? Because of this, people’s attention to this decision is not a whim.”
The Fed stated in December last year that it would restore the 10 million jobs lost due to the epidemic and that it would not make adjustments to debt purchases until “further substantial progress” is made in this work. As of August, the 10 million lost jobs had not yet been restored to half. The employment participation rate has not reached the level expected by some policymakers.
The close connection between policy and job losses caused by the epidemic made sense at the end of last year, because the United States was worried that it would fall back into recession and the new crown vaccine has not yet been widely vaccinated. But now the employment recovery has been up and down, and it is affected by a variety of very different factors, such as the adequacy of childcare institutions.
If the Fed sends a strong signal that the US monetary policy is ending the crisis model, and will lead people to focus on the next stage of the debate-when inflation will require the Fed to raise the current nearly zero federal funds rate, it will give gold. The market brings a new round of selling pressure.
Look at $1737 under spot gold
On the hourly chart, the price of gold started a downward c wave trend from US$1809 and fell below the 100% target level of US$1757. The market outlook is expected to drop to 138.2% of the target level of US$1737. Wave c is a sub-wave of the downward (ii) wave that started at $1834. (ii) The wave is a sub-wave that started the upward ((i)) wave from $1680.