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Market News Golden Week Review: Gold price gains narrowed, FED hawks vowed to fight high inflation to the end
Golden Week Review: Gold price gains narrowed, FED hawks vowed to fight high inflation to the end
Spot gold is expected to close higher for the third week in a row, hitting a new high of $1,873.99 per ounce since May 9, but an increase of less than 0.4%, with a cumulative intraday fluctuation of nearly $45. Although high inflation continued to plague the U.S. economy, Fed policymakers strengthened their hawkish tendencies, and the performance of the labor market also supported the Fed’s stance of not giving up until it reached its goal. The dollar index strengthened again after two weeks, limiting the rebound of gold prices.
2022-06-03
11232
Spot gold is expected to close higher for the third consecutive week, hitting a new high of $1,873.99 per ounce since May 9, but an increase of less than 0.4%, with a cumulative intraday fluctuation of nearly $45. Although high inflation continued to plague the U.S. economy, Fed policymakers strengthened their hawkish tendencies, and the performance of the labor market also supported the Fed’s stance of not giving up until the goal was reached. The U.S. dollar index strengthened again after two weeks, limiting the rebound of gold prices.
As of press time, spot gold rose 0.34% to US$1,859.87 per ounce; the US dollar index rose 0.33% to 102.004.
The U.S. non-farm payrolls increased by 390,000 in May, higher than the expected increase of 325,000, and the previous value was slightly revised up to 436,000; the U.S. unemployment rate remained unchanged at 3.60% in May, 0.1 percentage points higher than the expected value; the May average The annual rate of hourly wages was in line with expectations at 5.20%, lower than the previous value of 5.50%. The data supported the Fed to strengthen its hawkish posture, and the price of gold showed a downward trend after the announcement.
Although U.S. private employment growth was much lower than expected in May, suggesting that demand for labor began to slow amid rising interest rates and tightening financial conditions; the Federal Reserve's Beige Book report released on Wednesday confirmed that there are signs that labor supply and demand There are some signs of relaxation. But the number of job openings in the U.S. remains significantly high, and layoffs are at record lows. That suggests wages will continue to rise as companies compete for workers, and keep inflation uncomfortably high for some time.
"Behind the huge gap between job openings and hiring, and between job openings and unemployed workers, is a tight labor market," said Sophia Koropeckyj, senior economist at Moody's Analytics.
"The gap remains near the highest level in postwar U.S. history, suggesting wage growth will remain firm until further improvements in labor supply and normalization of job openings bring the labor market back into balance," Goldman economists wrote in a note. ."
Consumer spending could slow in the future as household savings continue to drain, especially given rising borrowing costs and further disruptions to supply chains from the Russian-Ukrainian war, raising fears of a recession. But Fed officials saw little reason to pause rate hikes in September.
"I advocate for a 50 basis point rate hike at every meeting until inflation is confirmed to have fallen significantly. Until we do that, I don't see the point of stopping," said Fed Governor Waller. This underscores the Fed's efforts to control tensions due to upward pressure on prices.
Fed Vice Chairman Brainard said that even if price pressures start to subside, the Fed is still likely to raise interest rates, but at a reduced rate. , and "a lot of work to be done".
Cleveland Fed President Mester called on the Fed to be "resilient" and that "recession risks have risen, but with underlying aggregate demand momentum and labor demand so strong, there is still a good case for a better balance between demand and supply as demand and supply are better balanced. , a sharp economic slowdown can be avoided, growth has slowed in line with this year's trend, labor market conditions remain healthy, and inflation has fallen to the 4.5%-5.5% range this year and will fall further next year."
Veronica Clark, an economist at Citigroup in New York, said: "It will take some time for a more pronounced rebalancing between labor demand and available worker supply. The current imbalance points to further upward pressure on inflation, which is underpinning strong inflation. The Fed is unlikely to become more dovish until key forces in the U.S. have eased."
Sam Bullard, senior economist at Wells Fargo, said: "The report continues to show signs of a tightening labor market, which, combined with the high inflation environment we're in, further convinces the Fed that it needs to continue on the path of substantial monetary tightening. superior."
So far this year, the Fed has raised its policy rate by a cumulative 75 basis points. At its meetings this month and July, the Fed is expected to continue the May rhythm of raising rates by 0.5 percentage points each. If there are any signs that inflation will remain high, or that wages of the American people continue to rise and the economy is performing strongly, the Federal Reserve may maintain an aggressive interest rate hike strategy after July, so it is not a wise option to aggressively long gold.
Economists at Rabobank said: “While we believe the Fed’s determination to regain its anti-inflationary credibility has the potential to tip the U.S. economy into recession next year, we expect the dollar to find support. Any sense of crisis is likely to boost demand for the dollar, Even the deteriorating U.S. fundamentals that trigger the deterioration in sentiment reflects the fragile nature of sentiment. We expect high volatility in FX markets in the coming months, and we expect the dollar sell-off to be short-lived.”
Gold prices are likely to fall further and the Fed may have no choice but to stick to a hawkish policy stance, according to strategists at TD Securities. Therefore, as real interest rates rise, speculative money is likely to reduce long positions in gold, which should push prices lower.
ING economists believe that higher interest rates should set the stage for renewed dollar strength. The performance of U.S. economic data will also support the idea of the Fed continuing to raise interest rates and provide a long-term bullish case for the dollar.
U.S. President Joe Biden's public approval rating fell to 36 percent this week as U.S. inflation is more than triple the Fed's 2 percent target, already driving Americans' cost of living sharply higher, the latest polls show. The lowest level since the presidency has raised concerns that his Democratic Party could lose control of at least one of both houses of Congress in the Nov. 8 midterm elections.
U.S. President Joe Biden met with Federal Reserve Chairman Jerome Powell on Tuesday (May 31) to discuss the worst inflation the U.S. is experiencing in decades. Biden pledged to respect the Fed's decision-making independence to address inflation as it sees fit.
Flavio Carpenzano, investment director at Capital Group, said: “The market is now focusing less on inflation and more on recession risk, which is why we are seeing the market reprice.” But Carpenzano does not believe the Fed can ease its stance because of inflation rate is more than four times the target level.
"We need to see a more meaningful cooling of inflation gains before the Fed can breathe," said Jennifer Lee, senior economist at BMO Capital Markets in Toronto.
While data from the latest U.S. personal consumption expenditures (PCE) price index reinforced optimism that inflation may have peaked in April, analysts are increasingly concerned that prices will remain troublingly longer than expected This will also continue to support gold's anti-inflationary charm.
Societe Generale strategists pointed out that real interest rates are the key factor supporting the rise in gold prices, and other factors driving the rise in gold prices are currently under hype, including geo-risks caused by the Ukraine war, further disruption of the global supply chain, intensifying inflation and triggering a recession.
As of press time, spot gold rose 0.34% to US$1,859.87 per ounce; the US dollar index rose 0.33% to 102.004.
Nonfarm payrolls improved in May
The U.S. non-farm payrolls increased by 390,000 in May, higher than the expected increase of 325,000, and the previous value was slightly revised up to 436,000; the U.S. unemployment rate remained unchanged at 3.60% in May, 0.1 percentage points higher than the expected value; the May average The annual rate of hourly wages was in line with expectations at 5.20%, lower than the previous value of 5.50%. The data supported the Fed to strengthen its hawkish posture, and the price of gold showed a downward trend after the announcement.
Although U.S. private employment growth was much lower than expected in May, suggesting that demand for labor began to slow amid rising interest rates and tightening financial conditions; the Federal Reserve's Beige Book report released on Wednesday confirmed that there are signs that labor supply and demand There are some signs of relaxation. But the number of job openings in the U.S. remains significantly high, and layoffs are at record lows. That suggests wages will continue to rise as companies compete for workers, and keep inflation uncomfortably high for some time.
"Behind the huge gap between job openings and hiring, and between job openings and unemployed workers, is a tight labor market," said Sophia Koropeckyj, senior economist at Moody's Analytics.
"The gap remains near the highest level in postwar U.S. history, suggesting wage growth will remain firm until further improvements in labor supply and normalization of job openings bring the labor market back into balance," Goldman economists wrote in a note. ."
Fed hawks take turns
Consumer spending could slow in the future as household savings continue to drain, especially given rising borrowing costs and further disruptions to supply chains from the Russian-Ukrainian war, raising fears of a recession. But Fed officials saw little reason to pause rate hikes in September.
"I advocate for a 50 basis point rate hike at every meeting until inflation is confirmed to have fallen significantly. Until we do that, I don't see the point of stopping," said Fed Governor Waller. This underscores the Fed's efforts to control tensions due to upward pressure on prices.
Fed Vice Chairman Brainard said that even if price pressures start to subside, the Fed is still likely to raise interest rates, but at a reduced rate. , and "a lot of work to be done".
Cleveland Fed President Mester called on the Fed to be "resilient" and that "recession risks have risen, but with underlying aggregate demand momentum and labor demand so strong, there is still a good case for a better balance between demand and supply as demand and supply are better balanced. , a sharp economic slowdown can be avoided, growth has slowed in line with this year's trend, labor market conditions remain healthy, and inflation has fallen to the 4.5%-5.5% range this year and will fall further next year."
Veronica Clark, an economist at Citigroup in New York, said: "It will take some time for a more pronounced rebalancing between labor demand and available worker supply. The current imbalance points to further upward pressure on inflation, which is underpinning strong inflation. The Fed is unlikely to become more dovish until key forces in the U.S. have eased."
Sam Bullard, senior economist at Wells Fargo, said: "The report continues to show signs of a tightening labor market, which, combined with the high inflation environment we're in, further convinces the Fed that it needs to continue on the path of substantial monetary tightening. superior."
So far this year, the Fed has raised its policy rate by a cumulative 75 basis points. At its meetings this month and July, the Fed is expected to continue the May rhythm of raising rates by 0.5 percentage points each. If there are any signs that inflation will remain high, or that wages of the American people continue to rise and the economy is performing strongly, the Federal Reserve may maintain an aggressive interest rate hike strategy after July, so it is not a wise option to aggressively long gold.
Economists at Rabobank said: “While we believe the Fed’s determination to regain its anti-inflationary credibility has the potential to tip the U.S. economy into recession next year, we expect the dollar to find support. Any sense of crisis is likely to boost demand for the dollar, Even the deteriorating U.S. fundamentals that trigger the deterioration in sentiment reflects the fragile nature of sentiment. We expect high volatility in FX markets in the coming months, and we expect the dollar sell-off to be short-lived.”
Gold prices are likely to fall further and the Fed may have no choice but to stick to a hawkish policy stance, according to strategists at TD Securities. Therefore, as real interest rates rise, speculative money is likely to reduce long positions in gold, which should push prices lower.
ING economists believe that higher interest rates should set the stage for renewed dollar strength. The performance of U.S. economic data will also support the idea of the Fed continuing to raise interest rates and provide a long-term bullish case for the dollar.
Inflation must be suppressed
U.S. President Joe Biden's public approval rating fell to 36 percent this week as U.S. inflation is more than triple the Fed's 2 percent target, already driving Americans' cost of living sharply higher, the latest polls show. The lowest level since the presidency has raised concerns that his Democratic Party could lose control of at least one of both houses of Congress in the Nov. 8 midterm elections.
U.S. President Joe Biden met with Federal Reserve Chairman Jerome Powell on Tuesday (May 31) to discuss the worst inflation the U.S. is experiencing in decades. Biden pledged to respect the Fed's decision-making independence to address inflation as it sees fit.
Flavio Carpenzano, investment director at Capital Group, said: “The market is now focusing less on inflation and more on recession risk, which is why we are seeing the market reprice.” But Carpenzano does not believe the Fed can ease its stance because of inflation rate is more than four times the target level.
"We need to see a more meaningful cooling of inflation gains before the Fed can breathe," said Jennifer Lee, senior economist at BMO Capital Markets in Toronto.
While data from the latest U.S. personal consumption expenditures (PCE) price index reinforced optimism that inflation may have peaked in April, analysts are increasingly concerned that prices will remain troublingly longer than expected This will also continue to support gold's anti-inflationary charm.
Societe Generale strategists pointed out that real interest rates are the key factor supporting the rise in gold prices, and other factors driving the rise in gold prices are currently under hype, including geo-risks caused by the Ukraine war, further disruption of the global supply chain, intensifying inflation and triggering a recession.
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