English
Market News Gold Market Weekly Review: FED's debt reduction next week and interest rate hikes next year are expected to heat up, and gold prices fall by 9 dollars this week
Gold Market Weekly Review: FED's debt reduction next week and interest rate hikes next year are expected to heat up, and gold prices fall by 9 dollars this week
In the week of October 30, the price of gold continued to fluctuate downward. The price of gold fell by US$9.27, a decrease of 0.52%. The price of gold fell this week, mainly due to the market’s rising expectations of the Fed’s decision to reduce debt next week and raise interest rates next year, which has put heavy pressure on gold prices. However, due to the slow economic growth in the United States, the labor market is still facing severe problems, which has led to stagnation. Rising concerns have arisen, and such concerns have limited the decline in gold prices before the Fed’s decision.
2021-10-30
9443
On Saturday (October 30), the price of gold maintained a fluctuating downward trend during the week. The price of gold fell by US$9.27, a decrease of 0.52%.
The price of gold fell this week, mainly due to the market’s rising expectations of the Fed’s decision to reduce debt next week and raise interest rates next year, which has put heavy pressure on gold prices. However, due to the slow economic growth in the United States, the labor market is still facing severe problems, which has led to stagnation. Rising concerns have arisen, and such concerns have limited the decline in gold prices before the Fed’s decision.
Looking ahead to next week, investors need to pay close attention to the Fed's November interest rate decision next week. It can be said that global commodity trends will revolve around the tone given by the next week's resolution. Next Thursday, November 4, GMT+8, at 2 o'clock in the morning, the Federal Reserve will announce the latest interest rate resolution. This resolution will not announce economic expectations and dot plots, but Powell will hold a press conference. Investors must maintain a high degree of vigilance.
Gold price daily chart trend
Fed Chairman Powell’s final speech last Friday almost declared that the beginning of the debt reduction process has officially entered the countdown. In his latest speech, Powell's concerns about continued high inflation have increased, and he made it clear that he will soon begin to reduce the scale of bond purchases. Higher U.S. bond yields will put heavy pressure on gold prices.
Powell pointed out that I do think it is time to reduce debt purchases; but it is too early to talk about raising interest rates. Compared with before the new crown epidemic, the United States still has 5 million job opportunities reduced. Supply bottlenecks may last longer and stimulate inflation, which is obviously a risk now. However, he still reiterated his view that as the pressure of the epidemic subsides, high inflation may weaken next year.
Currently, the Fed purchases 120 billion US dollars of US Treasury bonds and mortgage-backed securities (MBS) every month. The market generally expects that the Fed will announce the start of the reduction at the end of the policy meeting held from November 2 to 3.
Analysts pointed out that it is not difficult to see from Powell’s final speech before the November resolution that the Fed’s current announcement of the November QE reduction has almost reached a consensus, but on the issue of when to raise interest rates, the two factions of eagles and doves are divided. Still larger. In any case, inflation has become an increasingly critical element in the Fed's assessment of the outlook for monetary policy.
Brian Levitt, a global market strategist at Invesco, said in a report that Powell no longer denies inflation. He expects that inflationary pressures will ease over time, but the risks to the economy from rising prices are increasing.
As the recent sell-off of U.S. Treasuries continues, many Wall Street portfolio managers have recently become increasingly concerned about an increasingly dangerous prospect: Even a modest rise in yields in the future may cause trillions of dollars in losses.
This is because investors previously had too much risk exposure to bond duration. Duration is a key indicator to measure the risk of bondholders, and it is now close to a record high level. Even if the yield jumps only 50 basis points from the current level, reaching the average level before the 2019 epidemic, it will be enough to destroy all types of funds. It will also affect all asset classes from emerging markets to high-tech stocks.
Barbara Ann Bernard, founder of hedge fund Wincrest Capital, said that interest rate hikes have now become a systemic risk. Raising interest rates is bad for everything except banks. In addition, if inflation continues to remain at this level, economic growth will also be very slow.
As governments and companies issue more long-term bonds, and interest rates fall, bond durations have increased substantially-bond calculations show that low-interest bonds increase duration risk. At the same time, the epidemic relief program caused a surge in debt burden.
Alberto Gallo, portfolio manager of Algebris Investments, pointed out that due to low real interest rates, many risky assets were previously too expensive. And as central banks try to normalize, this situation will change.
Wall Street currently generally believes that the 10-year U.S. Treasury bond yield will rise to 2% in a year, which will bring it close to the 2019 average of 2.14%. Since the beginning of August, the yield has soared by about 50 basis points. For companies that expect future cash flows, the decline in the environment of high interest rates is particularly sensitive. This makes technology companies face the greatest risk. Many risk assets are vulnerable, including corporate bonds that are below investment grade.
Industry insiders pointed out that in the bond market, there is no need for a slump on the scale of 1994. For bond investors, 1994 was a notorious year and the losses would be huge. Bank of America’s latest monthly survey of fund managers earlier this month showed that their investment ratio in the bond market has fallen to a record low: the global bond ratio has dropped to a net negative 80%, the lowest level since the survey began.
Gold is very sensitive to changes in interest rates. The Fed has previously stated in public that the current inflation is "only temporary." After the release of higher-than-expected inflation data, the market expects that the Fed may accelerate monetary policy tightening, which will push up interest rates and weaken the attractiveness of gold.
More and more people expect that the Fed may begin to tighten interest rates before the second half of 2022. CME FedWatch Tool, an analysis tool of CME Group, shows that the market expects the possibility of raising interest rates in June next year to exceed 48%.
Driven by factors such as rising energy prices, inflationary pressures are continuing to rise, and the Fed's pace of raising interest rates is also approaching. This week’s federal funds rate futures show that the possibility of raising interest rates by 25 basis points in June next year is more than 60%, and the market has fully digested the interest rate hike in September next year, and futures traders have also digested the expectation of two interest rate hikes before the end of 2022. . It should be noted that only a few weeks ago, the federal funds rate futures also heralded the first rate hike in early 2023.
At the same time, major Wall Street banks are also considering the possibility of the Fed raising interest rates sooner and faster. BNP Paribas even expects to raise interest rates as many as four times next year. Shahid Ladha, head of G-10 interest rate strategy at BNP Paribas, said on the 25th that the Fed may initiate an interest rate hike cycle as early as next summer and last until the end of 2022. The Fed may meet at four meetings from July to December 2022. Raise interest rates every time.
And as investors begin to bet that the central bank will tighten policies to deal with inflation, this has pushed the yields of short-term Treasury bonds, which are relatively sensitive to interest rates, to continue to rise. The US 2-year Treasury bond yield has more than doubled in a month to 0.45%. In response to this, as of October 21, the U.S. Treasury bond index has fallen 3.3% this year, which may be the largest annual decline since 2009.
For the future, U.S. bond yields may still have a lot of upside. Bank of America has raised its forecast for U.S. Treasury yields to reflect the Fed’s expectation that the Fed will raise interest rates sooner and faster. The Bank of America has raised its target for 5-10 year bond yields in 2022 by 10-15 basis points. The target 10-year U.S. Treasury yield at the end of 2021 is 1.65% and 2% at the end of 2022.
In addition, the latest monthly fund manager survey conducted by the Bank of America in the week ending October 14 showed that as inflation issues pushed up interest rates, investors were more bearish on the bond market than since the survey began 20 years ago. most.
More and more people are dissatisfied with Powell, and even cross-border bipartisanship. As inflation continues to rise in the United States, this has led to general dissatisfaction among members of both parties in Congress. Powell's re-election pressure may cause him to consider speeding up interest rate hikes.
Powell’s term as chairman of the Federal Reserve will expire in February next year. The seven-member Federal Reserve Board also has a vacant seat, and there will be one to two seats to be filled in the next few months. Some progressives support the replacement of Powell's chairmanship by the current director Brainard.
A few weeks ago, Democratic Senator Elizabeth Warren lashed out at Powell in a routine speech to the Senate Banking Committee. She insisted that the Fed’s loose monetary policy under Powell’s leadership was tantamount to putting the interests of big companies above the ordinary people, and then she also called Powell a “dangerous” person who “cannot be trusted” and should not be in charge of him. The most important central bank in the world.
According to the latest news, Republican Senator Rick Scott also stood up against the nomination of Powell for re-election. Scott said that unless Fed Chairman Powell stated that the Fed is an "independent agency" working in the best interests of Americans, he would not support Powell's re-nomination. In a letter to Powell, he said: If there are no major and obvious changes in the policy course, I will not be able to support you in continuing to serve as the chairman of the Federal Reserve after the end of your current term.
Scott expressed concern about the Fed's balance sheet, the Fed's role in financing and purchasing federal debt, and inflation trends, saying that the Fed should achieve "the goal of maximizing employment and maintaining price stability."
Unlike Warren, Scott is not a member of the Senate Finance Committee. This also shows that the range of senators who are dissatisfied with Powell's re-election is expanding and spanning both parties in Congress.
Previously, in the financial reports routinely disclosed by the regional Fed chairmen in 2020, there were short-term trading records of certain stocks, which aroused their concerns about conflicts of interest within the Fed. The two regional Fed presidents have submitted their resignations for this reason. Powell has also taken some major actions to try to silence critics, including strengthening ethical reviews and promoting a ban on Fed officials' participation in transactions. Unfortunately, Powell himself failed to escape the anger of the press. His own transaction involving millions of dollars was exploded shortly afterwards.
Too many people worry that the Fed is just blindly injecting funds into the market and dumping more assets in bank reserves, but it will not have a real impact on the real economy. Considering Scott's influence in Florida, his outspoken opposition may have a serious impact on Powell's re-election prospects.
Florida has confronted the Biden administration more than once. Recently, Florida Governor Ron DeSantis said that Florida hopes to recruit law enforcement officers from other states who have not been vaccinated against the new crown. He said that law enforcement officers relocated to Florida will be able to avoid the new crown vaccine and receive a $5,000 bonus. DeSantis believes that Biden's policy of authorizing mandatory new crown vaccination will cause law enforcement personnel to lose their jobs and cause serious damage to the US economy.
At the end of last month, Florida sued the Biden administration over border policy. Governor DeSantis also signed an executive order that day to prevent the state agency from assisting in the transfer of undocumented immigrants arriving in the state.
On Tuesday, Senator Brown stated that President Biden is likely to propose "multiple" candidates to the Fed Board of Governors, which may not include the current Fed Chairman Powell, and will ensure that workers’ issues are more focused. Brown believes that Powell "does something that is too supportive of Wall Street in terms of deregulation, and is not sufficiently involved in climate issues."
This week, the market’s attention to the performance of the initial GDP data in the third quarter of the United States was far less than expected, which gave the US economy recovering under the epidemic a blow and supported the price of gold at the same time. Specific data show that the initial value of the actual GDP annualized quarterly rate in the third quarter of the United States actually announced 2%, which is expected to be 2.6%, and the previous value is 6.7%.
The agency commented on the actual GDP data of the United States in the third quarter, saying that with the outbreak of the epidemic, the U.S. economy grew at the slowest rate in more than a year in the third quarter, further aggravating the tension of the global supply chain, leading to a shortage of automobiles and other commodities. Almost suppressed consumer spending.
Institutional analysis said that during the new crown epidemic, due to supply shortages and the epidemic relief provided by the government, inflation was aggravated. The weakening of fiscal stimulus and the destruction of U.S. offshore energy production by Hurricane Ida at the end of August also put pressure on the economy.
Affected by supply chain and epidemic issues, the growth rate of the US economy has slowed. Another analysis pointed out that the slowdown in economic growth in the third quarter was mainly related to the surge in infection cases caused by the delta variant.
At the end of the summer, Americans reduced their outings and travels in order to avoid contracting the virus. This means less consumption in hotels, restaurants, theaters, resorts and other places. As a result, as the largest engine of the economy, consumer spending may have only increased by less than 1%. In contrast, the annual growth rate of spring spending was 12% and 11.4% in the first three months of this year.
The delta variant is not the only reason for people to reduce spending. The large-scale government stimulus plan provided by the federal government has basically expired by the end of the third quarter. Earlier this year, huge stimulus checks issued to individuals and families boosted consumption.
Even if consumers want to increase consumption, they sometimes cannot buy enough goods, such as new cars and trucks, due to continued labor shortages and insufficient supply. As the United States has experienced the worst inflation in 30 years, a global shortage of computer chips has slowed production and prices have soared to record highs. Decline in car sales is another important reason for the decrease in consumer spending.
Economists at TD Securities pointed out in their notes to clients that the delta variant, the end of fiscal stimulus, and supply restrictions may have suppressed US GDP. Other factors holding back economic growth this summer include a record international trade deficit and stagnant home sales. Due to the shortage of labor and materials, builders cannot build enough houses.
However, the U.S. economy seemed to pick up a bit in the first month of the fourth quarter. As the influence of the delta variant faded, the American people regained their previous consumption patterns. Economists predict that in the last three months of this year, GDP will accelerate to 4.8%.
Joel Naroff of Naroff Economic Advisors said that people have various concerns about inflation, supply chain chaos and labor shortages, but the economy continues to move forward fairly solidly. If labor shortages and supply bottlenecks are quickly alleviated, the economic recovery will be faster. However, these problems are expected to continue to ferment in 2022.
All signs show that the current shortage of the labor market in the United States is still severe. For those American companies that urgently need to recruit employees to expand their production lines to meet market demand, the current situation is obviously not optimistic.
According to the latest business conditions survey released by the National Association of Business Economics, nearly half of 47% of the respondents reported that they faced a shortage of skilled labor in the third quarter, which is much higher than the 32% in the second quarter of this year.
At the same time, none of the respondents said that their company’s labor shortage will ease before the end of 2021. 36% of the respondents expect this to happen sometime in 2022, and 14% expect it to happen by 2023. Or it will get better later.
According to the survey, labor shortages have now become a sign of the economic recovery period of the pandemic, which is especially common in the commodity production sector. It is difficult for companies to attract the employees they need to meet the growing needs of consumers, and the risk of people contracting the epidemic still exists.
Some people are also waiting for a more suitable time to return to the labor market, or resign in order to get a better position, or choose to stay at home because of family and child care responsibilities. From the perspective of these interviewed companies, 27% of the companies indicated that they did not receive enough job applications, while 20% of the companies indicated that the applicants who applied for the job lacked the corresponding job skills.
However, it is worth mentioning that the shortage of unskilled workers has decreased. The NABE report shows that the proportion of unskilled labor shortages fell from 16% in the July survey to 11% in the October survey.
Although how to retain existing employees and attract new employees has become the biggest concern of many American companies today, they are also facing other severe challenges at multiple levels, such as rising prices and chaotic supply chains.
In the NABE survey, one-third of respondents said that rising cost pressures are the biggest downside risk to their operations. None of the companies participating in the survey cut their prices in the third quarter, and none of them expects to cut prices in the next three months.
This summer, the US official inflation indicator continued to soar.
The US CPI data has been in the "Five Times" for several consecutive months, and the year-on-year increase in September reached a 13-year high of 5.4%. The most popular price index for tracking consumer spending by the Fed, the PCE price index, also set a 30-year high in August.
So far, higher price increases have not stopped consumers from spending, but economists worry that this may happen in the future. And this will be really bad news for economic recovery.
With the market's growing concerns about the risk of stagflation, the price of gold is expected to usher in a turning point. In terms of inflation indicators, the latest data shows that the US CPI has risen for 16 consecutive months. In September, the CPI rose by 5.4% year-on-year, exceeding market expectations. It increased by more than 5% year-on-year for the fifth consecutive month, the highest level since July 2008.
Historically, when inflation is rising, gold has been seen as an attractive investment. In the era of out-of-control inflation in the 1970s, gold skyrocketing staged an epic market: in the 72-80 years of rising inflation in the United States, the price of gold rose 10 times, while US stocks fell 5.6% during the same period, and the bond market plummeted.
With the continuous disturbance of the global supply chain, "temporary" inflation is still continuing, and the scope and duration of its impact are expanding. US Secretary of Transportation Pete Buttigieg previously admitted that some of the current supply chain issues facing the United States are very complex and that "challenges" will continue to exist, not only in the next year or two, but may continue "year after year".
Affected by the disruption of the supply chain, the global economic recovery has shown signs of stagnation. Business surveys from the United States, the United Kingdom, and the Eurozone show that manufacturing activity has slowed as delivery times have increased and the backlog has increased. At the same time, European and American companies have fallen into a serious labor shortage.
The Governor of the Bank of England Bailey has admitted that supply bottlenecks and labor shortages are worsening and may curb economic growth and increase inflation in the coming months. Raphael Bostic, President of the Atlanta Federal Reserve Bank, also holds a similar view. He believes that price increases are not "temporary" and that the inflation rate has lasted longer than expected.
Jim Leaviss, head of the fixed income department of M&G Investments, said that if central banks choose to tighten policies to deal with inflation, it will depress economic demand and drag down economic growth, but it will not be able to solve the inflation problem caused by supply chain disruption, and stagflation may worsen. .
As the "stagflation" panic intensifies, gold is expected to usher in a turning point. Nicky Shiels, head of MKS's metal strategy group, said that if "temporary" inflation turns into sustained inflation and slowing economic growth, gold will definitely have some good room for growth. Stagflation will force asset allocation from typical deflationary assets or bulk commodities such as oil and copper to the precious metals industry.
TD Securities also holds a similar view. Analysts of the bank said that although stagflation has attracted the attention of some investors, it has not yet translated into additional demand for gold. However, as the global energy crisis intensifies, a cold winter may make energy prices continue to rise wildly and encourage stagflation. The bank predicts that short covering in the gold market may trigger greater momentum in early 2022.
Edward Moya, senior market analyst at OANDA, believes that although the dollar-dominated market situation may continue until the Fed announces the reduction of debt purchases, the downward pressure on gold is beginning to come to an end, the market is approaching a turning point, and the price of gold is expected to stabilize and regain history. A longer-term bullish trend.
The price of gold fell this week, mainly due to the market’s rising expectations of the Fed’s decision to reduce debt next week and raise interest rates next year, which has put heavy pressure on gold prices. However, due to the slow economic growth in the United States, the labor market is still facing severe problems, which has led to stagnation. Rising concerns have arisen, and such concerns have limited the decline in gold prices before the Fed’s decision.
Looking ahead to next week, investors need to pay close attention to the Fed's November interest rate decision next week. It can be said that global commodity trends will revolve around the tone given by the next week's resolution. Next Thursday, November 4, GMT+8, at 2 o'clock in the morning, the Federal Reserve will announce the latest interest rate resolution. This resolution will not announce economic expectations and dot plots, but Powell will hold a press conference. Investors must maintain a high degree of vigilance.
Gold price daily chart trend
The Fed's decision next week to reduce debt expectations heats up, supporting U.S. bond yields to put pressure on gold prices
Fed Chairman Powell’s final speech last Friday almost declared that the beginning of the debt reduction process has officially entered the countdown. In his latest speech, Powell's concerns about continued high inflation have increased, and he made it clear that he will soon begin to reduce the scale of bond purchases. Higher U.S. bond yields will put heavy pressure on gold prices.
Powell pointed out that I do think it is time to reduce debt purchases; but it is too early to talk about raising interest rates. Compared with before the new crown epidemic, the United States still has 5 million job opportunities reduced. Supply bottlenecks may last longer and stimulate inflation, which is obviously a risk now. However, he still reiterated his view that as the pressure of the epidemic subsides, high inflation may weaken next year.
Currently, the Fed purchases 120 billion US dollars of US Treasury bonds and mortgage-backed securities (MBS) every month. The market generally expects that the Fed will announce the start of the reduction at the end of the policy meeting held from November 2 to 3.
Analysts pointed out that it is not difficult to see from Powell’s final speech before the November resolution that the Fed’s current announcement of the November QE reduction has almost reached a consensus, but on the issue of when to raise interest rates, the two factions of eagles and doves are divided. Still larger. In any case, inflation has become an increasingly critical element in the Fed's assessment of the outlook for monetary policy.
Brian Levitt, a global market strategist at Invesco, said in a report that Powell no longer denies inflation. He expects that inflationary pressures will ease over time, but the risks to the economy from rising prices are increasing.
As the recent sell-off of U.S. Treasuries continues, many Wall Street portfolio managers have recently become increasingly concerned about an increasingly dangerous prospect: Even a modest rise in yields in the future may cause trillions of dollars in losses.
This is because investors previously had too much risk exposure to bond duration. Duration is a key indicator to measure the risk of bondholders, and it is now close to a record high level. Even if the yield jumps only 50 basis points from the current level, reaching the average level before the 2019 epidemic, it will be enough to destroy all types of funds. It will also affect all asset classes from emerging markets to high-tech stocks.
Barbara Ann Bernard, founder of hedge fund Wincrest Capital, said that interest rate hikes have now become a systemic risk. Raising interest rates is bad for everything except banks. In addition, if inflation continues to remain at this level, economic growth will also be very slow.
As governments and companies issue more long-term bonds, and interest rates fall, bond durations have increased substantially-bond calculations show that low-interest bonds increase duration risk. At the same time, the epidemic relief program caused a surge in debt burden.
Alberto Gallo, portfolio manager of Algebris Investments, pointed out that due to low real interest rates, many risky assets were previously too expensive. And as central banks try to normalize, this situation will change.
Wall Street currently generally believes that the 10-year U.S. Treasury bond yield will rise to 2% in a year, which will bring it close to the 2019 average of 2.14%. Since the beginning of August, the yield has soared by about 50 basis points. For companies that expect future cash flows, the decline in the environment of high interest rates is particularly sensitive. This makes technology companies face the greatest risk. Many risk assets are vulnerable, including corporate bonds that are below investment grade.
Industry insiders pointed out that in the bond market, there is no need for a slump on the scale of 1994. For bond investors, 1994 was a notorious year and the losses would be huge. Bank of America’s latest monthly survey of fund managers earlier this month showed that their investment ratio in the bond market has fallen to a record low: the global bond ratio has dropped to a net negative 80%, the lowest level since the survey began.
The Fed's interest rate hike expectations in 2022 heat up, putting pressure on gold prices
Gold is very sensitive to changes in interest rates. The Fed has previously stated in public that the current inflation is "only temporary." After the release of higher-than-expected inflation data, the market expects that the Fed may accelerate monetary policy tightening, which will push up interest rates and weaken the attractiveness of gold.
More and more people expect that the Fed may begin to tighten interest rates before the second half of 2022. CME FedWatch Tool, an analysis tool of CME Group, shows that the market expects the possibility of raising interest rates in June next year to exceed 48%.
Driven by factors such as rising energy prices, inflationary pressures are continuing to rise, and the Fed's pace of raising interest rates is also approaching. This week’s federal funds rate futures show that the possibility of raising interest rates by 25 basis points in June next year is more than 60%, and the market has fully digested the interest rate hike in September next year, and futures traders have also digested the expectation of two interest rate hikes before the end of 2022. . It should be noted that only a few weeks ago, the federal funds rate futures also heralded the first rate hike in early 2023.
At the same time, major Wall Street banks are also considering the possibility of the Fed raising interest rates sooner and faster. BNP Paribas even expects to raise interest rates as many as four times next year. Shahid Ladha, head of G-10 interest rate strategy at BNP Paribas, said on the 25th that the Fed may initiate an interest rate hike cycle as early as next summer and last until the end of 2022. The Fed may meet at four meetings from July to December 2022. Raise interest rates every time.
And as investors begin to bet that the central bank will tighten policies to deal with inflation, this has pushed the yields of short-term Treasury bonds, which are relatively sensitive to interest rates, to continue to rise. The US 2-year Treasury bond yield has more than doubled in a month to 0.45%. In response to this, as of October 21, the U.S. Treasury bond index has fallen 3.3% this year, which may be the largest annual decline since 2009.
For the future, U.S. bond yields may still have a lot of upside. Bank of America has raised its forecast for U.S. Treasury yields to reflect the Fed’s expectation that the Fed will raise interest rates sooner and faster. The Bank of America has raised its target for 5-10 year bond yields in 2022 by 10-15 basis points. The target 10-year U.S. Treasury yield at the end of 2021 is 1.65% and 2% at the end of 2022.
In addition, the latest monthly fund manager survey conducted by the Bank of America in the week ending October 14 showed that as inflation issues pushed up interest rates, investors were more bearish on the bond market than since the survey began 20 years ago. most.
Powell’s road to re-election adds additional resistance, which may cause Powell to be forced to accelerate interest rate hikes
More and more people are dissatisfied with Powell, and even cross-border bipartisanship. As inflation continues to rise in the United States, this has led to general dissatisfaction among members of both parties in Congress. Powell's re-election pressure may cause him to consider speeding up interest rate hikes.
Powell’s term as chairman of the Federal Reserve will expire in February next year. The seven-member Federal Reserve Board also has a vacant seat, and there will be one to two seats to be filled in the next few months. Some progressives support the replacement of Powell's chairmanship by the current director Brainard.
A few weeks ago, Democratic Senator Elizabeth Warren lashed out at Powell in a routine speech to the Senate Banking Committee. She insisted that the Fed’s loose monetary policy under Powell’s leadership was tantamount to putting the interests of big companies above the ordinary people, and then she also called Powell a “dangerous” person who “cannot be trusted” and should not be in charge of him. The most important central bank in the world.
According to the latest news, Republican Senator Rick Scott also stood up against the nomination of Powell for re-election. Scott said that unless Fed Chairman Powell stated that the Fed is an "independent agency" working in the best interests of Americans, he would not support Powell's re-nomination. In a letter to Powell, he said: If there are no major and obvious changes in the policy course, I will not be able to support you in continuing to serve as the chairman of the Federal Reserve after the end of your current term.
Scott expressed concern about the Fed's balance sheet, the Fed's role in financing and purchasing federal debt, and inflation trends, saying that the Fed should achieve "the goal of maximizing employment and maintaining price stability."
Unlike Warren, Scott is not a member of the Senate Finance Committee. This also shows that the range of senators who are dissatisfied with Powell's re-election is expanding and spanning both parties in Congress.
Previously, in the financial reports routinely disclosed by the regional Fed chairmen in 2020, there were short-term trading records of certain stocks, which aroused their concerns about conflicts of interest within the Fed. The two regional Fed presidents have submitted their resignations for this reason. Powell has also taken some major actions to try to silence critics, including strengthening ethical reviews and promoting a ban on Fed officials' participation in transactions. Unfortunately, Powell himself failed to escape the anger of the press. His own transaction involving millions of dollars was exploded shortly afterwards.
Too many people worry that the Fed is just blindly injecting funds into the market and dumping more assets in bank reserves, but it will not have a real impact on the real economy. Considering Scott's influence in Florida, his outspoken opposition may have a serious impact on Powell's re-election prospects.
Florida has confronted the Biden administration more than once. Recently, Florida Governor Ron DeSantis said that Florida hopes to recruit law enforcement officers from other states who have not been vaccinated against the new crown. He said that law enforcement officers relocated to Florida will be able to avoid the new crown vaccine and receive a $5,000 bonus. DeSantis believes that Biden's policy of authorizing mandatory new crown vaccination will cause law enforcement personnel to lose their jobs and cause serious damage to the US economy.
At the end of last month, Florida sued the Biden administration over border policy. Governor DeSantis also signed an executive order that day to prevent the state agency from assisting in the transfer of undocumented immigrants arriving in the state.
On Tuesday, Senator Brown stated that President Biden is likely to propose "multiple" candidates to the Fed Board of Governors, which may not include the current Fed Chairman Powell, and will ensure that workers’ issues are more focused. Brown believes that Powell "does something that is too supportive of Wall Street in terms of deregulation, and is not sufficiently involved in climate issues."
The dismal economic growth in the third quarter of the United States supports gold prices
This week, the market’s attention to the performance of the initial GDP data in the third quarter of the United States was far less than expected, which gave the US economy recovering under the epidemic a blow and supported the price of gold at the same time. Specific data show that the initial value of the actual GDP annualized quarterly rate in the third quarter of the United States actually announced 2%, which is expected to be 2.6%, and the previous value is 6.7%.
The agency commented on the actual GDP data of the United States in the third quarter, saying that with the outbreak of the epidemic, the U.S. economy grew at the slowest rate in more than a year in the third quarter, further aggravating the tension of the global supply chain, leading to a shortage of automobiles and other commodities. Almost suppressed consumer spending.
Institutional analysis said that during the new crown epidemic, due to supply shortages and the epidemic relief provided by the government, inflation was aggravated. The weakening of fiscal stimulus and the destruction of U.S. offshore energy production by Hurricane Ida at the end of August also put pressure on the economy.
Affected by supply chain and epidemic issues, the growth rate of the US economy has slowed. Another analysis pointed out that the slowdown in economic growth in the third quarter was mainly related to the surge in infection cases caused by the delta variant.
At the end of the summer, Americans reduced their outings and travels in order to avoid contracting the virus. This means less consumption in hotels, restaurants, theaters, resorts and other places. As a result, as the largest engine of the economy, consumer spending may have only increased by less than 1%. In contrast, the annual growth rate of spring spending was 12% and 11.4% in the first three months of this year.
The delta variant is not the only reason for people to reduce spending. The large-scale government stimulus plan provided by the federal government has basically expired by the end of the third quarter. Earlier this year, huge stimulus checks issued to individuals and families boosted consumption.
Even if consumers want to increase consumption, they sometimes cannot buy enough goods, such as new cars and trucks, due to continued labor shortages and insufficient supply. As the United States has experienced the worst inflation in 30 years, a global shortage of computer chips has slowed production and prices have soared to record highs. Decline in car sales is another important reason for the decrease in consumer spending.
Economists at TD Securities pointed out in their notes to clients that the delta variant, the end of fiscal stimulus, and supply restrictions may have suppressed US GDP. Other factors holding back economic growth this summer include a record international trade deficit and stagnant home sales. Due to the shortage of labor and materials, builders cannot build enough houses.
However, the U.S. economy seemed to pick up a bit in the first month of the fourth quarter. As the influence of the delta variant faded, the American people regained their previous consumption patterns. Economists predict that in the last three months of this year, GDP will accelerate to 4.8%.
Joel Naroff of Naroff Economic Advisors said that people have various concerns about inflation, supply chain chaos and labor shortages, but the economy continues to move forward fairly solidly. If labor shortages and supply bottlenecks are quickly alleviated, the economic recovery will be faster. However, these problems are expected to continue to ferment in 2022.
The U.S. labor market still faces severe problems to support gold prices
All signs show that the current shortage of the labor market in the United States is still severe. For those American companies that urgently need to recruit employees to expand their production lines to meet market demand, the current situation is obviously not optimistic.
According to the latest business conditions survey released by the National Association of Business Economics, nearly half of 47% of the respondents reported that they faced a shortage of skilled labor in the third quarter, which is much higher than the 32% in the second quarter of this year.
At the same time, none of the respondents said that their company’s labor shortage will ease before the end of 2021. 36% of the respondents expect this to happen sometime in 2022, and 14% expect it to happen by 2023. Or it will get better later.
According to the survey, labor shortages have now become a sign of the economic recovery period of the pandemic, which is especially common in the commodity production sector. It is difficult for companies to attract the employees they need to meet the growing needs of consumers, and the risk of people contracting the epidemic still exists.
Some people are also waiting for a more suitable time to return to the labor market, or resign in order to get a better position, or choose to stay at home because of family and child care responsibilities. From the perspective of these interviewed companies, 27% of the companies indicated that they did not receive enough job applications, while 20% of the companies indicated that the applicants who applied for the job lacked the corresponding job skills.
However, it is worth mentioning that the shortage of unskilled workers has decreased. The NABE report shows that the proportion of unskilled labor shortages fell from 16% in the July survey to 11% in the October survey.
Although how to retain existing employees and attract new employees has become the biggest concern of many American companies today, they are also facing other severe challenges at multiple levels, such as rising prices and chaotic supply chains.
In the NABE survey, one-third of respondents said that rising cost pressures are the biggest downside risk to their operations. None of the companies participating in the survey cut their prices in the third quarter, and none of them expects to cut prices in the next three months.
This summer, the US official inflation indicator continued to soar.
The US CPI data has been in the "Five Times" for several consecutive months, and the year-on-year increase in September reached a 13-year high of 5.4%. The most popular price index for tracking consumer spending by the Fed, the PCE price index, also set a 30-year high in August.
So far, higher price increases have not stopped consumers from spending, but economists worry that this may happen in the future. And this will be really bad news for economic recovery.
U.S. inflation continues to climb, stagflation panic intensifies and supports gold prices
With the market's growing concerns about the risk of stagflation, the price of gold is expected to usher in a turning point. In terms of inflation indicators, the latest data shows that the US CPI has risen for 16 consecutive months. In September, the CPI rose by 5.4% year-on-year, exceeding market expectations. It increased by more than 5% year-on-year for the fifth consecutive month, the highest level since July 2008.
Historically, when inflation is rising, gold has been seen as an attractive investment. In the era of out-of-control inflation in the 1970s, gold skyrocketing staged an epic market: in the 72-80 years of rising inflation in the United States, the price of gold rose 10 times, while US stocks fell 5.6% during the same period, and the bond market plummeted.
With the continuous disturbance of the global supply chain, "temporary" inflation is still continuing, and the scope and duration of its impact are expanding. US Secretary of Transportation Pete Buttigieg previously admitted that some of the current supply chain issues facing the United States are very complex and that "challenges" will continue to exist, not only in the next year or two, but may continue "year after year".
Affected by the disruption of the supply chain, the global economic recovery has shown signs of stagnation. Business surveys from the United States, the United Kingdom, and the Eurozone show that manufacturing activity has slowed as delivery times have increased and the backlog has increased. At the same time, European and American companies have fallen into a serious labor shortage.
The Governor of the Bank of England Bailey has admitted that supply bottlenecks and labor shortages are worsening and may curb economic growth and increase inflation in the coming months. Raphael Bostic, President of the Atlanta Federal Reserve Bank, also holds a similar view. He believes that price increases are not "temporary" and that the inflation rate has lasted longer than expected.
Jim Leaviss, head of the fixed income department of M&G Investments, said that if central banks choose to tighten policies to deal with inflation, it will depress economic demand and drag down economic growth, but it will not be able to solve the inflation problem caused by supply chain disruption, and stagflation may worsen. .
As the "stagflation" panic intensifies, gold is expected to usher in a turning point. Nicky Shiels, head of MKS's metal strategy group, said that if "temporary" inflation turns into sustained inflation and slowing economic growth, gold will definitely have some good room for growth. Stagflation will force asset allocation from typical deflationary assets or bulk commodities such as oil and copper to the precious metals industry.
TD Securities also holds a similar view. Analysts of the bank said that although stagflation has attracted the attention of some investors, it has not yet translated into additional demand for gold. However, as the global energy crisis intensifies, a cold winter may make energy prices continue to rise wildly and encourage stagflation. The bank predicts that short covering in the gold market may trigger greater momentum in early 2022.
Edward Moya, senior market analyst at OANDA, believes that although the dollar-dominated market situation may continue until the Fed announces the reduction of debt purchases, the downward pressure on gold is beginning to come to an end, the market is approaching a turning point, and the price of gold is expected to stabilize and regain history. A longer-term bullish trend.
Bonus rebate to help investors grow in the trading world!
Or try Free Demo Trading
