On Wednesday (November 23), spot gold fell again, but hovered around $1,730 an ounce. Investors were generally on the sidelines ahead of the minutes of the Fed’s November policy meeting. Traders may swing between continued hawkish rhetoric from Fed officials and a softening of expectations from the Fed’s hawkish stance.
At 19:51 Beijing time, spot gold fell 0.05% to $1,739.10 an ounce; the main COMEX gold futures contract fell 0.01% to $1,739.8 an ounce; the U.S. dollar index fell 0.12% to 107.033.
The minutes of the Fed’s November meeting, which will be released at 3 o’clock on Thursday (November 24), Beijing time, may recognize the need to slow down the pace of interest rate hikes, but the peak of interest rates may be higher than expected. The minutes may also show that officials are not overwhelmingly in favor of a slower pace of rate hikes, given that the meeting came before confirmation of weak inflation data for October.
The dollar has broadly rallied against all major currencies this year, buoyed by the Federal Reserve’s most aggressive rate hikes in nearly four decades, but recent weaker-than-expected inflation data has led investors to trim expectations for future Fed rate hikes.
Michael Hewson, chief market analyst at CMC Markets, said:“There’s really been a general lack of interest among investors ahead of the Fed minutes. There’s nothing significant to push gold higher.” Gold has “pretty good support” around $1,730, he added.
ED&F Man Capital Markets analyst Edward Meir said:“Markets are a little nervous ahead of the Fed minutes. In the short term, expect gold prices to move a bit higher between now and the end of the year as I think the dollar will weaken further and we’re pretty close to peaking inflation and interest rates.”
Dhwani Mehta of FXStreet reports that,Gold could gain upward momentum ahead of the release of the Fed minutes. “Currently, the market expects about a 75% probability of a 50 basis point rate hike in December. The minutes of the Fed’s November meeting will be closely watched for new signals about the Fed’s future policy shift.”
The Fed continues to be hawkish
Kansas City Fed President Esther George said on Tuesday (November 22) that the central bank may need to raise interest rates higher and keep them there for longer to successfully curb consumer demand and reduce high inflation, so households still have a large number of interest rates since the pandemic. Idle savings.
“This dynamic of excess savings and distribution … is a key factor affecting the outlook for output, inflation, and interest rates,” George said. Of course, higher savings can reduce the precautionary contraction in consumption, and interest rates will likely need to be at the same level for a while. Higher levels are required to persuade households to preserve savings rather than deplete them, which of course increases inflationary pressures.”
Cleveland Fed President Loretta Mester reiterated on Tuesday that reducing inflation remains critical for the central bank, “Given high levels of inflation, restoring price stability remains a primary concern (of the Federal Open Market Committee), and we are committed to using our tools to Inflation is back to the 2% target.”
Mester said wage increases have risen markedly. But she added that, for the most part, wage gains have remained below inflation, suggesting worker wages are not the main driver of inflation. She also said readings on inflation expectations held steady.
Analysts at Scotiabank see terminal rate forecasts likely to be revised upwards in the Fed’s December ‘dot plot’…Markets may be vulnerable to FOMC pricing in a cut to 50bps in December rate hikes The implications of signs of a sharp rate hike are still being weighed. The Fed is expected to further reject its stance on pausing tightening given that the guidance is likely to be ‘very hasty’. “
ING said:“The dollar is facing a fresh sell-off and we don’t rule out that this pullback will continue. But we still expect a bearish dollar trend to take hold in December with a generally hawkish Fed and a slowing global economy.” reversal.”
According to ANZ strategists:“Given that the Fed is expected to raise interest rates by 50 basis points in December and inflation remains well above the target range, it will be difficult for gold to break through this resistance level before the end of the year. We expect gold prices to hold firm at the $1,700 support level, But the price could still test down to $1620, which is a key near-term support level. A break below $1620 could open the door for gold to fall below $1600.”
Issues to be wary of
Wharton finance professor Jeremy Siegel warned that the Fed needs to realize that inflation is cooling and the U.S. economy is faltering, or it risks an unnecessary recession and a drop in corporate earnings.
“Economic weakness — just not yet in the labor market, it may take a serious downturn in the labor market to convince the Fed to pause/reverse tightening, but I think a slowdown is coming,” Siegel noted.
In addition to lower hiring and a likely rise in unemployment, Siegel expects a weaker housing market as higher interest rates drive up mortgage costs. “Given the surge in mortgage rates, we will definitely see more pressure on house prices.”
Siegel added that the possibility of an economic slowdown remains, and that the longer the Fed delays its turn, the worse the recession and corporate earnings slump will be next year. “It wouldn’t surprise me that the fed funds rate falls back to 2 percent by the end of 2023.”
But he noted that he still hasn’t given up hope that the U.S. economy can stay afloat. “If the Fed recognizes that inflationary pressures are over and eases the brakes, we still have a small chance of avoiding a recession.”
FX analysts at Commerzbank said in a note:“Right now, traders may be torn between continued hawkish rhetoric from Fed members and the outlook for Fed action in 2023. It is unlikely that the current dollar level has fully priced in the Fed’s end-point for rate hikes.”
Kinesis Money analyst Rupert Rowling said in a note:“Gold has been driven by Fed policy and comments from its officials for most of this year, so investors will be scrutinizing every word in the minutes to determine the likely trajectory of the Fed’s interest rate curve in the coming months. If the global economy continues to Struggling, the Fed is unlikely to tighten monetary policy as the market thinks, and that should support gold as ultimately yields may not rise further.”
Spot gold looks at $1721
On the hourly chart, the price of gold fell below $1746, and the lower support looked at $1721 and $1701, which were the 23.6%, 38.2% and 50% Fibonacci retracement levels of the upward range of $1616-1786 respectively.