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Market News Spot gold has continued its upward trend for nearly a week, and the FED is facing two major difficulties in accelerating its tightening policy

Spot gold has continued its upward trend for nearly a week, and the FED is facing two major difficulties in accelerating its tightening policy

On November 11, spot gold continued its gains over the past week, approaching the new high of US$1,685.55 per ounce recorded overnight since June 15. The U.S. index also remained firm, rising to a new high of 95.101 since late July 2020. Prior to this, US inflation data hit a 31-year record high, which helped raise market expectations for the Federal Reserve to raise interest rates faster. The severe labor shortage is pushing up wages, but high inflation will also erode wage growth, thereby reducing GDP growth. The Fed cannot control supply chain bottlenecks and fiscal expenditures.

2021-11-11
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On Thursday (November 11), spot gold continued its gains over the past week, approaching the new high of US$1868.55 per ounce recorded overnight since June 15. The U.S. index also remained firm, rising to a new high of 95.101 since late July 2020. Prior to this, US inflation data hit a 31-year record high, which helped raise market expectations for the Federal Reserve to raise interest rates faster.


At 19:55 GMT+8, spot gold rose 0.81% to US$1864.57 per ounce; the main COMEX gold contract rose 1.00% to US$1866.8 per ounce; the US dollar index rose 0.10% to 94.984.


Data released overnight showed that in October, US consumer prices recorded the largest year-on-year increase of 6.2% in 31 years, driven by the sharp rise in gasoline and food prices. The rise in prices in the United States has extended to rents, which may put pressure on wages, thereby prolonging and amplifying the inflationary pressure caused by the epidemic. The labor market is also brewing inflationary pressures. Another report released by the US Department of Labor overnight showed that the number of initial jobless claims dropped to the lowest level since mid-March 2020 last week.

Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York, said that "quite alarming" inflation figures, including sharp increases in rents, suggest that high consumer prices "are unlikely to prove to be temporary."

David Meger, Director of the Metals Trading Department of High Ridge Futures, said: "We have once again seen hot inflation data. Gold is a typical inflation hedge. We believe that inflation is a potentially bullish environment that will promote gold in the coming weeks and months. The city has soared."

Alexander Lin, a U.S. economist at Bank of America Securities, said: “Rent rises and service industry fever may make the Fed start uneasy because they expect labor to return to the market in the next few months, thereby alleviating supply chain bottlenecks.” He pointed out the current risks. The interest rate hike may be ahead of schedule.

How long can the Fed play Tai Chi?


As the latest wave of epidemics driven by the mutant strain of Delta fades, bottlenecks in the supply chain continue to exist, and inflation is heating up again. The trillions of dollars in anti-epidemic relief funds provided by governments around the world have stimulated demand for goods and made the supply chain overwhelmed. The COVID-19 pandemic that lasted for the past two years has disrupted the labor market, and labor shortages are serious.

More signs indicate that with the global supply chain in trouble, inflation may remain uncomfortably high in 2022. The Fed has started to reduce debt purchases, which is expected to be completed in mid-2022, after which it will begin to raise interest rates. The Fed's next policy direction depends on whether rising inflation affects market sentiment more broadly.

But San Francisco Fed President Daly still said on Wednesday (November 11) that she expects that once the new crown epidemic subsides, high inflation will fall. She also reiterated that it is "too early" to raise interest rates and even speed up the Fed's reduction in debt purchases.

In an interview with Bloomberg Television, Daley said: “Uncertainty requires us to wait and be vigilant.” She also said that supply chain bottlenecks and high consumer demand for goods have driven high inflation, and the fear and fear of the new crown virus Affected by the epidemic, labor supply has been restricted.

Ray Attrill, head of foreign exchange strategy at National Australia Bank, said that interest rate trends, especially short bond interest rates, indicate that traders believe that if prices continue to rise, the Fed will raise interest rates. "The market still gives the Fed a degree of credibility that they will not allow very high inflation to continue indefinitely."

He said that if the U.S. dollar index rises above 95, investors may begin to withdraw. "Technically, this is a fairly high level. If we can break through this level, then more people will concede defeat."

CICC’s latest view is that the rise of gold after the release of US inflation data indicates that the market believes that inflation will rise faster than the Fed’s tightening policy. “We think the Fed may be in a dilemma. How to balance growth and inflation will be A problem facing the Fed."

CICC stated that if the Fed tightens its currency in advance, it may be able to stifle inflation in the bud, but it will also have a negative impact on economic recovery and adversely affect employment growth. In addition, the sudden "swift turn" of monetary policy will increase the pressure on asset price adjustments and intensify market volatility. But if the Fed ignores inflation, it may lead to self-reinforcing inflation expectations and eventually higher inflation.

The Fed cannot control fiscal spending


The severe labor shortage is pushing up wages, but high inflation will also erode wage growth and increase the political risks facing US President Biden. As Americans become more anxious about the economic outlook, his approval rating has been declining. Expanding inflationary pressures may also complicate the Fed’s communications.

In a statement, Biden attributed high inflation to soaring energy prices, and stated that he had instructed the White House National Economic Council to seek further means to reduce energy costs, and asked the Federal Trade Commission to manipulate the market or drive up prices in the industry. Responded.

Senator Joe Manchin, a moderate Democrat, said on Wednesday that politicians cannot continue to ignore the economic pain Americans feel every day. Given that the Democratic Party has only a weak advantage in Congress, Manchin's attitude is likely to influence Biden's future agenda.

Biden is trying to reach an agreement on a proposal of about $1.75 trillion to expand the country's social safety net and combat climate change. Manchin had previously expressed concern that the new spending bill may increase inflation, although White House officials and some independent economists disputed this view.

Nancy Davis, founder of Quadratic Capital Management, said that the Fed cannot control supply chain bottlenecks and fiscal expenditures. “If inflation does not subside, the Fed may need to reduce debt purchases and raise interest rates even more.”

Ryan Sweet, a senior economist at Moody's in West Chester, Pennsylvania, said: “The market is concerned that U.S. inflation may continue to rise for longer than previously thought, but this does not mean it is permanent. The Fed may Faced with a situation where higher consumer prices begin to put pressure on consumer spending, thereby reducing GDP growth."

Deutsche Bank (Deutsche Bank) strategist Alan Ruskin said: "We are in a kind of deadlock. On the dollar side, we face a typical dilemma-if the Fed does not respond to high inflation, it is not good for the dollar; if If the Fed tightens its policy ahead of schedule, it will benefit the U.S. dollar. Now the U.S. dollar is basically stuck between these two scenarios."

Spot gold looks at $1887


On the hourly chart, the price of gold is in the upward wave iii starting from $1,759. Looking at the market outlook, the target level of 123.6% is $1873 and the target level of 138.2% is $1887. Wave iii is a sub-wave of the upward wave (iii) that started at $1721.
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