On Tuesday (November 29), spot gold regained its decline in the past two trading days, as the US dollar index weakened again. The Fed is widely expected to cut its rate hike to 50 basis points at its December policy meeting. The Fed’s policy rate is already in a restrictive zone, a little more caution helps, and raising rates slowly is a better risk management approach.
At 20:11 Beijing time, spot gold rose 0.82% to $1,755.55 an ounce; the main COMEX gold futures contract rose 0.82% to $1,754.5 an ounce; the U.S. dollar index fell 0.40% to 106.243.
The market expects the Federal Reserve to cut interest rate hikes to 50 basis points at its December meeting. According to the minutes of the November meeting released last week, Fed officials said at the meeting that they believed that the pace of rate hikes would slow down soon.
Federal Reserve Chairman Powell’s speech at the Brookings Institution event on Wednesday (November 30) has attracted attention. If the tone of Powell’s speech is interpreted by the market as not promoting a hawkish stance, then gold will continue to rebound.
Overnight, some Fed officials made hawkish comments. St. Louis Fed President Bullard said the Fed needs to raise interest rates further. New York Fed President Williams and Richmond Fed President Barkin also expressed similar views.
Bullard: Inflation stickier than expected
The Fed will likely need to raise rates above 5% in early 2023 and keep its benchmark policy rate there for the rest of the year and all of 2024 to successfully curb inflation, Bullard said. Markets still appear to be underestimating how tight the Fed will need to keep policy in check to keep inflation under control, although there is still some expectation that inflation may subside on its own, he added.
U.S. stocks suffered a brief sell-off a few weeks ago after Bullard caused a stir in a speech suggesting the federal funds rate might need to rise to 7%. Since the beginning of 2022, the Fed has raised the federal funds rate by 375 basis points to 3.75%-4.00%.
Asked whether he would support a 75 basis point hike at the Fed’s December meeting, Bullard demurred. But Bullard believes that inflation will be more sticky than investors expect and it may take some time to return to the Fed’s 2% target.
In Bullard’s view, the fact that the labor market and the economy are as strong as ever gives the Fed license to take more aggressive steps and try to get inflation under control immediately “so that we don’t go back to the 1970s – when It took the FOMC 15 years to get inflation under control.”
Asked whether he thought the Fed should consider adjusting its 2 percent inflation target, Bullard replied that “it’s a completely bad idea for the current environment” and that even if inflation moves closer to the Fed’s target, he thinks the Fed would need to. Remaining aggressively hawkish until inflation falls all the way back to 2%, lest they ease prematurely and cause price pressures to get out of control.
UBS analyst Giovanni Staunovo said,While a weaker U.S. dollar is currently supporting gold, we still expect further Fed rate hikes to weigh on gold prices in the coming weeks,” the market will be watching closely for any signs that rate hikes are over. Gold will benefit if Powell says the end of rate hikes is near; Otherwise, it will put pressure on gold.”
Williams: Recession non-baseline forecast
New York Fed President John Williams said interest rates need to rise further and remain elevated through the end of next year, “I do think we need to remain restrictive for some time, and I expect that to continue at least until next year. But he had no issue with slowing the pace of rate hikes at the Fed’s December meeting.
“Overall demand for labor and services still far outstrips available supply, causing inflation to be broad-based and take longer to pull it back down,” Williams noted. The Fed has more work to do to tighten monetary policy further Should help restore the balance between demand and supply and bring inflation back to 2% over the next few years.”
Williams told reporters he sees the path of rate hikes as “higher” than expected in September, and he expects the central bank to keep rates high until at least next year. But after that, things get a little unpredictable and will depend on the data.
Williams said he expects core commodity prices to fall going forward, and that “cooling global demand and steadily improving supply will result in lower prices for manufactured goods that are heavily dependent on commodities, as well as goods that are heavily affected by supply chain bottlenecks.”
Williams also said that while the economic risk is to the downside, a recession is not part of his baseline forecast. He expects the unemployment rate to rise to 4.5%-5% by the end of next year from the current 3.7% and core inflation to slow to 3%-3.5% next year from 5-5.5% at the end of this year.
According to economists at Commerzbank:“There may be more hawkish comments from the Fed in the near term, but as long as the market does not get a more solid argument, especially ensuring that the US will not cut interest rates next year, the dollar is still unlikely to benefit.”
Balkin: Slow motion does not mean no motion
Richmond Fed President Barkin said he supports the central bank reducing interest rate hikes in the fight against inflation. “I am very supportive of taking a slower, possibly longer, and possibly higher path.” How high to rise.
Barkin said he believed the Fed needed to make sure it didn’t stop raising rates prematurely and that it should refrain from talking about possible policy easing until it was sure inflation was under control. “When you’re in a restrictive area, it helps to be a little bit cautious because, you know, what you’re doing will affect somewhere in the future. That’s not the same as not moving; I just think that when collecting data Slowing down is a better approach to risk management.”
Regardless of recent gains, the dollar may already be under renewed selling pressure, not only because Fed Chairman Jerome Powell may further hint at a slower pace of interest rate hikes in an upcoming speech, but signs of cooling inflation are likely to reinforce the view that the Fed is taking a less aggressive approach. Expectations of aggressive interest rate policy.
Spot gold looks at $1766
On the daily chart, the price of gold started an upward wave III from $1,725, and the upper resistance looked at the 23.6% target of $1,766 and the 38.2% target of $1,791. Wave III is a sub-wave of the upward (I) wave that started at $1616.
On the hourly chart, the price of gold started an upward ((3)) wave trend from $1738, and the upper resistance looked at the 61.8% target of $1758 and the 76.4% target of $1763. ((3)) is the sub-wave of wave iii.