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Market News Gold market analysis: the Federal Reserve's interest rate decision is about to debut, gold is waiting in a key position

Gold market analysis: the Federal Reserve's interest rate decision is about to debut, gold is waiting in a key position

In the later period, we need to focus on US non-agricultural data and inflation performance. If it far exceeds market expectations, or further strengthens the Fed’s expectations of exiting easing, the price of gold may fall to $1,725 per ounce and find new support points.

2021-11-03
11295
During the Asian session on Wednesday (November 3), spot gold held steady at around 1787. On Tuesday (November 2), the price of gold fell slightly, mainly because the US dollar and US stocks rose before the Fed’s decision, but the slight drop in US bond yields supported gold prices. In general, gold is eagerly waiting for the final result of the Fed's interest rate discussion above the key support level of 1780 in the near future.



Since entering the fourth quarter, major European and American central banks have cautiously curbed their monetary policies. Before the Fed's meeting on interest rates, major central banks around the world withdrew or were preparing to withdraw from easing policies, but the overall withdrawal process was relatively slow and orderly. Recently, the European Central Bank, the Bank of Japan, and the Bank of Canada kept their benchmark interest rates unchanged, but the reduction in the size of British government bond issuance exceeded expectations, and the Bank of Canada unexpectedly ended quantitative easing. The Federal Reserve will announce the results of the interest rate discussion in the early hours of this Thursday. It is expected that this meeting will shrink the balance sheet with a high probability, that is, 10 billion US bonds and 5 billion MBS bonds per month. First of all, the Fed has strengthened its expectations of shrinking balance sheets to the market. The Fed released the Taper signal at the Jackson Hole meeting at the end of August. The Fed's interest rate meeting in September has indicated that it may start reducing monthly asset purchases as early as mid-November. At present, the Fed has almost reached a consensus on the November announcement to reduce QE. Recently, Fed Chairman Powell also expressed that concerns about continued high inflation have increased, and made it clear that he will soon start to reduce the scale of bond purchases. His statement basically announced the start of the debt reduction process "about the winter." Second, the economic conditions required for the Fed to shrink its balance sheet have basically been met. In December of last year, the Federal Reserve set the preconditions for reducing its debt purchase program, namely, achieving full employment and a 2% inflation target. With the increase in vaccination rates, the impact of the epidemic on the US society and economy has gradually weakened. From the perspective of employment, the current US job market has basically reached the "employment gap disappearance" standard established by the Fed's new framework; from the perspective of inflation, despite the recent slowdown in US economic activity, it is affected by soaring energy costs and supply chain disruptions. The level of inflation in the United States remains high. The overall CPI inflation rate in the United States in September reached 5.4%, and the PPI growth rate also recorded a new high since the financial crisis. The current US inflation level is much higher than the Fed’s 2% target, and supply bottlenecks and production problems will cause inflationary pressures to continue to rise. The problem of high inflation caused by rising demand and supply imbalance will continue to exist in the medium and long term, and inflation will no longer be a short-term disturbance factor. . Compared with the reduction of the balance sheet, the threshold for raising interest rates is higher than that of Taper, but raising interest rates is the focus of this interest rate meeting. For the Fed, shrinking the balance sheet is an important step in the normalization of the Fed's monetary policy, which means that the Fed's monetary policy has shifted from ultra-loose to loose. We believe that under the background of accelerating upward inflation in the US, the Fed may raise interest rates faster than originally suggested. Whether the Fed will describe the timing and path of future interest rate hikes at this meeting will determine the medium and long-term direction of the gold price. Judging from the previous U.S. dollar interest rate hike cycles, the upward trend of the U.S. dollar index will generally accompany the entire interest rate hike cycle, while the price of gold remains weak as a whole. In the short term, the impact of the reduction of the balance sheet on the price of gold will be relatively mild, but if the resolution is hawkish or the process of raising interest rates is accelerated, it will have a spillover effect on global assets and benefit the US dollar in the short term.

In the short-term, focus on the support near the 20-day moving average and the $1780/oz mark. In the later period, we need to focus on US non-agricultural data and inflation performance. If it far exceeds market expectations, or further strengthens the Fed’s expectations of exiting easing, the price of gold may fall to $1,725 per ounce and find new support points.

Bank of China Guangdong Branch Wang Gang

Original Title: 20211103—The Fed's interest rate decision is about to debut, gold is waiting in a key position

Source: Bank of China official website
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