Spot gold continues to weaken, the U.S. index stops at the 94 mark; pay attention to the meeting of the two central banks this week
On October 27, spot gold continued to weaken, and the US dollar index continued to stop at the 94 mark. In the context of supply bottlenecks driving global inflationary pressures, investors are paying attention to the policy statements to be announced by Japan and the European Central Bank this week to find clues about the outlook for interest rates. Investors are still waiting for the Fed meeting next week. The Bank of Japan is not expected to announce any policy changes. European Central Bank President Lagarde is expected to counter market expectations of high inflation and interest rate hikes.

On Wednesday (October 27), spot gold continued to weaken, and the US dollar index continued to stop at the 94 mark. In the context of supply bottlenecks driving global inflationary pressures, investors are paying attention to the policy statements to be announced by Japan and the European Central Bank this week to find clues about the outlook for interest rates. Investors are still waiting for the Fed meeting next week.
At 19:45 GMT+8, spot gold price fell 0.17% to US$1,789.84 per ounce; the main COMEX gold contract fell 0.11% to US$1791.4 per ounce; the US dollar index fell 0.07% to 93.888.
Pay attention to the Bank of Japan’s outlook on economic prices
The Bank of Japan is not expected to announce any policy changes after completing its two-day meeting on Thursday. There is widespread speculation that the economic weakness in the second and third quarters may prompt the Bank of Japan to lower its forecast for the 2021 fiscal year.
However, the potential economic rebound may be stronger than current expectations. Recent data shows that output and prices are soaring, which may promote economic growth, making inflation meet the Bank of Japan’s 2% target sooner than many people expected.
This may prompt the Bank of Japan to adjust its policy to be hawkish earlier than expected, and may even reverse direction and upgrade its outlook at the upcoming policy meeting. If this scenario occurs, the Bank of Japan's departure from the ultra-loose policy may temporarily help limit the yen's decline, and the dollar may struggle to rise above the 115 mark against the yen.
ING foreign exchange strategist wrote in a client report: “Short the yen position has obviously become a very popular transaction among speculators...but it still seems difficult to see continued support for the yen. It is only a question of when the dollar/yen will rise to 115.00, not whether it will be."
Lagarde may forcefully suppress hawks' expectations
Markets The European Central Bank is expected to maintain its policy on Thursday, leaving the decision on the emergency bond purchase plan during the epidemic until December, and the euro has recently weakened due to this. European Central Bank President Lagarde is expected to counter market expectations of high inflation and interest rate hikes.
The Eurozone economy is currently facing multiple adverse shocks. Supply chain bottlenecks have caused shortages of various commodities, and Eurozone inflation hit a 13-year high in September. Despite these uncertainties, the market currently expects the central bank to raise interest rates for the first time by the end of 2022.
Some European Central Bank policymakers have responded to expectations of market interest rate hikes. Earlier this month, European Central Bank chief economist Lien questioned whether it would raise interest rates by the end of next year, because the central bank has stated that it will not raise interest rates until the medium-term inflation rate reaches 2%.
Deutsche Bank chief economist Mark Wall wrote: "The market will be keen to hear whether Lagarde... as strongly as the European Central Bank chief economist Lien argues that the market's expected interest rate hike timing is inconsistent with the new guidance."
Spyros Adreopoulos, senior European economist at BNP Paribas, said in a recent report: "We believe that the European Central Bank still has room for continued opposition to current market pricing at policy meetings... We also expect that Lagarde will insist that The current surge in inflation is largely temporary."
If the European Central Bank still believes that it will not raise interest rates next year, Lagarde needs to express it in a policy press conference, and the intensity must be quite large, so that it is possible to limit the upside of the euro.
U.S. consumer confidence rebounds
Consumer confidence in the United States unexpectedly strengthened in October, and concerns about high inflation were overshadowed by improved labor market prospects. Consumers are optimistic about the status quo and short-term prospects, suggesting that economic growth is picking up after a turbulent third quarter.
According to a survey released by the Conference Board on Tuesday, consumers still plan to increase spending despite the belief that inflation will remain high. Motor vehicle purchase intention rebounded from a nine-month low. In the next six months, more consumers plan to buy household appliances such as washing machines, televisions and refrigerators. The proportion of Americans planning a vacation is the highest since February 2020.
Christopher Rupkey, chief economist at FWDBONDS, said: “Consumers are more optimistic after the downturn in the third quarter. This supports the view that the economy will perform strongly in the last quarter of 2021. Consumers know that the tight labor market will support them. Those who expect an economic recession due to the decline in consumer confidence at the end of the summer will have to change their minds."
Earlier this month, the US Department of Labor reported that consumer prices rose again in September, and the inflation rate rose 5.4% from a year ago. This matches the largest increase since 2008, as the chaos in the global supply chain continues to cause severe damage.
US National Security Adviser Sullivan said on Tuesday that President Biden will travel to Europe this week to participate in the Group of Twenty (G20) leaders' meeting, which will focus on economic topics such as energy prices and supply chain bottlenecks.
As consumer confidence is picking up, a new wave of viral infections is fading. Investors predict that this is expected to allow the Fed to raise interest rates earlier. The Fed's prospects for further release of hawkish information after next week's policy meeting are looking up, which may further suppress gold.
Spot gold material drops to $1767
On the hourly chart, the price of gold started to adjust the ii wave trend from 1814 US dollars, and the market outlook is expected to fall below the i wave 38.2% Fibonacci retracement level of 1778 US dollars and drop to the 50% Fibonacci retracement level of 1767 US dollars. Waves i and ii are both sub-waves of the upward wave (iii) that started from 1721 USD.
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