We recently noticed that some third-party companies and individuals impersonated the TOPONE Markets brand and illegally misappropriated our trademarks.

We Hereby Reiterate Our Statement:

  • TOPONE Markets does not provide discretionary account operation trading services, nor does it cooperate with other third-party vendors and/ or agents to provide such services.
  • TOPONE Markets staff will not promise to our customer the definite profit, please do not trust any kind of the profit promise or profit related picture, such as screenshot/ chat history, etc, all investment profit can be only viewed on our official website and application.
  • TOPONE Markets is a professional online trading platform with low spreads and zero handling fees. Be wary of any behavior that asks you for any fees directly and privately. TOPONE Markets does not charge a fee at any stage of its trading process or other fee.

If you have any questions or concerns, please feel free to reach us by clicking the "Online Customer Support" or send an email to our customer care team cs@top1markets.com. We will answer your questions and assist you promptly.

Understood
We use cookies to learn more about how you use our website and what we can improve. Continue to use our website by clicking "Accept". Details
Market News Gold trading reminder: The Fed's interest rate decision hits, and the stagflation of gold prices intensifies

Gold trading reminder: The Fed's interest rate decision hits, and the stagflation of gold prices intensifies

Spot gold fluctuated slightly on November 1, as the market's expectations for the Federal Reserve's decision to reduce debt this week and raise interest rates next year continue to heat up, which puts heavy pressure on gold prices. However, due to the slow economic growth in the United States, the labor market is still facing severe problems This led to the rise of stagflation concerns, which limited the decline in gold prices before the Fed’s decision.

2021-11-01
7878
Spot gold fluctuated slightly on November 1 (Monday). It is currently trading at around US$1780. Due to the rising expectations of the Fed’s decision to reduce debt this week and raise interest rates next year, this has put heavy pressure on gold prices. The slow economic growth in the United States and the labor market still face severe problems, which led to the rise of concerns about stagflation, which limited the decline in the price of gold before the Fed’s decision.

This week, we will focus on the Fed’s November interest rate resolution. This resolution will not announce economic expectations and dot-maps, but Powell will hold a press conference. Global commodity trends may be affected by the resolution. Investors must remain vigilant.



Fundamentals are bullish


U.S. economic growth in the third quarter was dismal

The performance of the initial GDP data in the third quarter of the United States was far below expectations, which gave the U.S. economy recovering under the epidemic a blow and supported the price of gold. 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.


(Daily chart of the US dollar index)

The U.S. labor market still faces severe problems

The problem of shortages in the US labor market remains 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 shortage has 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.

U.S. inflation continues to rise, panic intensifies

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.

Fundamentals are bad


Goldman Sachs expects the Fed to raise interest rates in July next year due to inflation

Goldman Sachs economists said they now expect inflation to force the Fed to raise interest rates in July next year, a year earlier than previously expected.

Economists such as Jan Hatzius pointed out in a report to clients later on Friday that they are expected to raise the benchmark interest rate from the 0-0.25% range shortly after the Fed’s massive asset purchase plan is halted. They predict that the Fed will raise interest rates for the second time in November 2022, and then it will raise interest rates twice a year.

It is expected that officials such as Fed Chairman Jerome Powell will announce next week that they will slow down the pace of asset purchases from November or December by about $15 billion per month. Although policymakers had previously disagreeed whether they expected to start raising interest rates in 2022 or 2023, investors have increasingly concluded in recent weeks that inflation will force them to raise interest rates next year.

Goldman Sachs economists said the main reason they made this new forecast is that inflation is now expected to be more stubborn than previously thought. They now expect that at the end of the balance sheet reduction, the consumer price index excluding food and energy will still be higher than 4%.
They said in the report: "We believe that the seamless connection from reducing balance sheet to raising interest rates will therefore become the path of least resistance."

The Fed has both an inflation target and an employment target. Although the Fed has stated that it hopes to maximize employment before raising interest rates, Hatzius and his colleagues said that when inflation is much higher than the target and employment opportunities are abundant, officials may conclude that the remaining The weakness of the labor force is mostly structural or voluntary.



Short-term interest rate traders increase their bets on the Fed's rate hike in June next year

U.S. short-term interest rate traders increasingly believe that the Fed will start raising interest rates in June next year, but they suspect that the rate hike may not be as large as policymakers have said.

Last Friday, the price of interest rate swaps related to the Fed meeting date reflected the probability of a 22 basis point increase in interest rates in June as high as 87%. A week ago, they predicted that the Fed will raise interest rates by 62%, a rate of 16 basis points.

At the same time, the slope of the Fed's interest rate path predicted by the market continues to decline. Its peak indicates that interest rates will be raised five to six times by the end of 2025, and the interest rate level is more than 100 basis points lower than the Fed officials' forecast.

After the Federal Open Market Committee meeting to be held next week, traders will calculate again. At that time, the Fed is expected to announce details of the timing and speed of debt reduction. Once the specific roadmap is announced, the market's expectations for a June interest rate hike are expected to change rapidly, and both upward and downward are possible.



Kitco survey results, most institutions are biased towards bearish outlook

Kitco's Golden Week survey results show that among the 13 Wall Street analysts participating in the survey, 53.8% are bearish on the gold price trend this week. Another 30.8% hold a neutral view, and only 15.4% hold bullish expectations.

Ordinary people are still optimistic. Among the 745 retail investors who participated in the survey, 60.5% held bullish expectations for this week’s price, 22.5% held bearish expectations, and 17% held fair expectations.

Marc Chandler, managing director of Bannockburn Global Forex, said that this is the market's expectation that the central bank will tighten monetary policy sooner than expected.

"Count me as bearish. The prospect of continued central bank policy repricing may put pressure on gold. The market seems to be saying that the central bank realizes that it is behind the inflation curve and will act quickly to correct this situation. The interest rate hike started this week. The gold price tested the upper end of the recent range, but was sold before the weekend and hit a new low this week. The October rally ended. The initial target for next week is $1,768 and then $1,757."


In general, the rise of gold prices has encountered some resistance. The interest rate decision this week may affect the gold structure. Before the interest rate decision, the market trading space may be restricted. Investors pay close attention to changes in market expectations.


(Spot gold daily chart)

GMT+8 08:08, spot gold was quoted at $1,781.98 per ounce.
Previous
Next

Bonus rebate to help investors grow in the trading world!

Need Assistance?

7×24 H

Download the APP for Free