On Tuesday (December 6), spot gold rebounded slightly, and the U.S. dollar index stepped back to the 105 mark. Gold posted its biggest one-day drop in nearly two-and-a-half months after strong U.S. service sector data released overnight sparked the possibility of the Federal Reserve raising interest rates higher than recently forecast. Gold’s upside momentum appears to be capped, at least until the conclusion of the Fed’s December policy meeting.
At 19:53 Beijing time, spot gold rose 0.49% to $1,777.32 an ounce; the main COMEX gold futures contract rose 0.48% to $1,789.7 an ounce; the U.S. dollar index fell 0.18% to 105.096.
Service sector takes over inflation
The overnight gold price hit a record high of $1,809.85 an ounce since early July. However, subsequent data showed that U.S. service industry activity unexpectedly picked up in November, and employment numbers rebounded. As a result, gold prices fell back and fell, with the largest one-day drop of 1.62% since September 23.
Federal Reserve Chairman Jerome Powell said earlier that it is time to slow down and raise interest rates. The market expects the Fed to cut interest rate hikes to 50 basis points this month. But in response to the worst inflation in decades, the Fed may be more cautious than previously expected.
This, combined with the much stronger-than-expected November non-farm payrolls data released last week, points to strong overall demand.If this trend is not questioned, the Fed will indeed have more bumps in the policy road. It may be too early to bet on a sustained rise in gold.
“While that’s good news for the growth outlook, it’s not so good for the Fed trying to curb demand and ease inflation,” Priscilla Thiagamoorthy, an economist at BMO Capital Markets in Toronto, said of the data.
The new data provided fresh evidence of more underlying momentum in the economy and raised the risk that the Federal Reserve will continue to raise interest rates above its most recent forecast of 4.6 percent. Traders predict the Fed will eventually raise interest rates to just above 5 percent in May next year.
The market is bracing for a recession next year. But solid economic data has fueled optimism that the widely feared recession will be short and mild. Some economists are even betting that a recession is avoidable, just that growth will slow sharply.
“The longer the U.S. economy remains strong, doubts may grow about whether the U.S. will actually face a recession next year and whether the Fed will actually cut key interest rates at that stage,” said You-Na Park-Heger, currency analyst at Commerzbank. .”
The acceleration in services sector activity also confirmed that the baton of inflation had shifted from goods to services, suggesting that overall price pressures in the economy may take time to subside. Gold’s upside momentum appears to be capped, at least until the conclusion of the Fed’s December policy meeting.
Bear “bankruptcy”?
In a sign of a broader shift in sentiment on the greenback, the dollar index has slumped nearly 8 percent since hitting a multi-decade high of 114.794 in September following a surge in U.S. interest rates earlier this year.
For the first time in nearly 16 months, speculative traders switched to a net short dollar position in the November futures market, according to calculations based on data from the Commodity Futures Trading Commission. The world appears to be bracing for a dollar bear market.
Remember what Volcker said when he was asked whether the rate-hiking “shock therapy” he employed as Fed chairman in the late 1970s was working? Volker replied: “Yes, through bankruptcy.”
Today, the Federal Reserve led by Powell has raised interest rates by 375 basis points this year, and recently raised interest rates by 75 basis points for four consecutive times, setting the fastest pace of interest rate hikes since the Volcker era. “Slower demand growth should allow supply to catch up with demand and restore balance, leading to price stability over time. Restoring that balance will likely require sustained below-trend growth,” Powell acknowledged. The term “below trend” That means recession and rising unemployment.
If the Fed ignores the fact that weak supply (poor logistics, lack of skilled workers and low productivity) is the main reason behind the post-pandemic inflation surge, and stubbornly insists on aggressive rate hikes, it will slow aggregate demand and leave households and businesses struggling to cope with rising borrowing interest costs. Reduce spending growth, thereby reducing inflation. But such an approach would also mean intensifying the hit to the supply side — in other words, pushing the U.S. economy into a downturn.
Powell don’t confuse the public
According to Powell, recent research by Fed economists has found that the low labor force participation rate in the United States is largely due to overretirement, that is, more people are retiring than expected from the aging population itself.
But many older workers lost their jobs early in the pandemic, when layoffs were at an all-time high. Finding new work appears to be particularly costly for these workers given the health concerns associated with the pandemic. The combination of a plunge in net migration and a surge in deaths during the pandemic could result in the loss of about 1.5 million workers. Therefore, rather than saying that the labor market is “tight” due to strong labor demand, it is better to say that a large number of working-age people have not returned to the “labor market”.
So what is driving inflation is a supply problem, with shortages of both labor and goods. The Fed’s determined policy of raising interest rates has had little effect on inflation. Instead, by pushing up the cost of credit, inflation eventually recedes, only to be replaced by higher unemployment and bankruptcies, which causes the dollar to correct.
Spot gold looks at $1763
On the daily chart, the price of gold started a callback ((C)) wave trend from US$1810, and the lower support looked at the 76.4% target at US$1763 and the 85.4% target at US$1758. The ((C)) wave is a sub-wave of the adjustment II wave that started at $1787.