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Market News Spot gold is hovering at a low in the past three weeks, but dollar bulls must face this warning sign
Spot gold is hovering at a low in the past three weeks, but dollar bulls must face this warning sign
On November 24, spot gold hovered near the low point of $1782.05 per ounce set overnight since November 4. After Powell was nominated by President Biden for re-election as Fed chairman, the US dollar continued to hit a new high of 96.758 since early July last year. Investors also seem to believe that the Fed may respond to inflation with a more hawkish attitude. But the dollar bulls are best not to be complacent. The United States faces the biggest current account imbalance since 2007, which is a warning sign for the dollar.
2021-11-24
8661
On Wednesday (November 24), spot gold was hovering near the low point of 1,782.05 US dollars per ounce set overnight since November 4. After Powell was nominated by President Biden for re-election as Fed chairman, the US dollar continued to hit a new high of 96.758 since early July last year. Investors also seem to believe that the Fed may respond to inflation with a more hawkish attitude.
At 19:41 GMT+8, spot gold fell 0.01% to US$1788.91 per ounce; the main COMEX gold contract rose 0.29% to US$1791.5 per ounce; the US dollar index rose 0.21% to 96.686.
The upcoming new year—usually a period of insufficient liquidity and instability in global markets after the Thanksgiving holiday in the United States—seems to be stressful. Most of these are due to the prolonged inflationary pressures surrounding the new crown pandemic and the more pressing demands of central banks for the normalization of monetary policies. The Fed began to reduce debt purchases this month, and is scheduled to end the process in mid-2022.
After Powell was nominated for re-election as chairman of the Federal Reserve this week, the investment market sentiment should have entered a relatively calm moment. However, the actual effect seems to be the opposite. The investment community has expressed more anxiety about the Fed’s recent release of the possibility of accelerating the reduction of bond purchases and even faster rate hikes. The money market has raised the Fed’s expected interest rate hikes in 2022 to three times, and the time for the first interest rate hike. From the previously predicted July to May.
In recent months, Powell has insisted that the current surge in inflation should only be short-lived, and said that the Fed will be "patient" in deciding when to raise interest rates. However, consumer prices in the United States in October hit a new high in more than 30 years. Some investors believe that the Fed will have to accelerate its reduction and raise interest rates earlier than expected to curb consumer price increases. Some Fed officials have recently publicly discussed whether it is necessary to withdraw economic stimulus measures more quickly to curb inflation, which has strengthened the views of these investors.
Gary Cloud, portfolio manager of Hennesnsy Equity and Income Fund, said: "We are in an era that has never been seen in history, because there is great uncertainty about whether the Federal Reserve will act in a timely manner to prevent inflation from rising sharply.
Mike Sewell, portfolio manager of T. Rowe Price, pointed out that to some extent investors are challenging the Fed, and they are increasingly worried that the Fed is too slow to act on inflation. Sewell bought dollars, betting that the Fed will need to raise interest rates three times next year to curb inflation.
Jeffrey Halley, senior market analyst at OANDA, said: "Although most of the fast-money long positions last week may have been closed now, gold is unlikely to have a meaningful rebound above $1,800." Halley predicts that gold's growth in the short term Any rebound will be limited to less than $1810.
StoneX analyst Rhona O'Connell said that real interest rates in the United States are still negative, and the uncertainty of the new crown epidemic is still good for gold, but Powell's re-election will ensure the continuity of Fed policy and put downward pressure on gold. Overall, before the December meeting of the Federal Reserve, gold investor sentiment remained cautious.
Carlo Alberto De Casa, an analyst at Kinesis Money, said: "Sound GDP data can confirm that the US economy is strong and can put more pressure on the Fed to tighten policy. But investors are more interested in inflation data, and it’s more important because Gold is trying to get closer to $1,800."
U.S. dollar watchers have not put the US current account and budget deficits in their eyes for a long time, but this situation may change next year, especially if the global economy is running hot and the US economy continues to outperform other countries.
Compared with other countries in the world, the balance of payments of the United States is deteriorating. In the three months to June, the current account deficit was US$190 billion, equivalent to 3.4% of gross domestic product (GDP). It is the largest current account imbalance in the United States since 2007. The current account deficit has exceeded 3% of GDP for five consecutive quarters. According to data from the US Congressional Budget Office, the federal budget deficit next year is estimated to exceed $1 trillion, which is at least 4.7% of GDP.
Structural problems are unlikely to cause a sudden blow to the dollar. Because as the Fed prepares to raise interest rates, while other central banks-especially the European Central Bank and the Bank of Japan-stand still, this will lead to widening of interest rate differentials, which is good for the dollar. But the dollar bulls had better not be complacent about the double deficit problem.
Alan Ruskin, a strategist at Deutsche Bank, said: “You can rest assured that if the dollar starts to continue to weaken, it will be the first stop.” He believes that the current account deficit to GDP ratio reaches or exceeds 4%. A warning sign, if the deficit reaches 5% or more, although it is unlikely, then the dollar will depreciate more severely.
Goldman Sachs analysts believe that the US's huge current account deficit means that the US dollar is overvalued by as much as 13%. They calculated that a deficit of about 2.5% of GDP is a sustainable standard, so the current level is an unfavorable factor for the U.S. dollar.
They wrote: “If the current account deficit is still large even without fiscal stimulus measures, then a weaker dollar may eventually be needed to achieve external balance.” They forecast an average deficit of 3.2% of GDP next year.
Data show that UK companies’ new orders grew strongly in November, while cost pressures hit a new high, which raised the possibility of the Bank of England’s interest rate hike in December. Financial markets believe that the probability of the Bank of England raising interest rates in December is 90%.
Haskell, a member of the Bank of England Monetary Policy Committee (MPC), said on Tuesday that the Bank of England needs to be vigilant against rising labor costs, because the tight job market means that wages may rise faster than productivity and put upward pressure on inflation. The Bank of England previously predicted that the inflation rate next year will reach around 5%.
He said: "The latest data continue to show that the labor market is tight, putting upward pressure on wages. From the perspective of living standards, this is certainly good news, but from the perspective of inflation, this must be related to the increase in productivity. Match, so we must remain vigilant."
The increase in interest rates will not mitigate the direct impact of soaring energy prices and bottlenecks in the global supply chain. But the Bank of England hopes that they can reduce the possibility of spiraling wages and prices, lest the high inflation rate lasts longer. That may bring new selling pressure on gold.
On the daily chart, the price of gold is in a downward ((Z)) wave that started from US$1877. It has fallen below the 38.2% target of US$1787, and further dropped to the 61.8% target of US$1731. The ((Z)) wave is a sub-wave of the IV wave that started from 2075 USD.
At 19:41 GMT+8, spot gold fell 0.01% to US$1788.91 per ounce; the main COMEX gold contract rose 0.29% to US$1791.5 per ounce; the US dollar index rose 0.21% to 96.686.
The upcoming new year—usually a period of insufficient liquidity and instability in global markets after the Thanksgiving holiday in the United States—seems to be stressful. Most of these are due to the prolonged inflationary pressures surrounding the new crown pandemic and the more pressing demands of central banks for the normalization of monetary policies. The Fed began to reduce debt purchases this month, and is scheduled to end the process in mid-2022.
After Powell was re-elected, the market became more tense
After Powell was nominated for re-election as chairman of the Federal Reserve this week, the investment market sentiment should have entered a relatively calm moment. However, the actual effect seems to be the opposite. The investment community has expressed more anxiety about the Fed’s recent release of the possibility of accelerating the reduction of bond purchases and even faster rate hikes. The money market has raised the Fed’s expected interest rate hikes in 2022 to three times, and the time for the first interest rate hike. From the previously predicted July to May.
In recent months, Powell has insisted that the current surge in inflation should only be short-lived, and said that the Fed will be "patient" in deciding when to raise interest rates. However, consumer prices in the United States in October hit a new high in more than 30 years. Some investors believe that the Fed will have to accelerate its reduction and raise interest rates earlier than expected to curb consumer price increases. Some Fed officials have recently publicly discussed whether it is necessary to withdraw economic stimulus measures more quickly to curb inflation, which has strengthened the views of these investors.
Gary Cloud, portfolio manager of Hennesnsy Equity and Income Fund, said: "We are in an era that has never been seen in history, because there is great uncertainty about whether the Federal Reserve will act in a timely manner to prevent inflation from rising sharply.
Mike Sewell, portfolio manager of T. Rowe Price, pointed out that to some extent investors are challenging the Fed, and they are increasingly worried that the Fed is too slow to act on inflation. Sewell bought dollars, betting that the Fed will need to raise interest rates three times next year to curb inflation.
Jeffrey Halley, senior market analyst at OANDA, said: "Although most of the fast-money long positions last week may have been closed now, gold is unlikely to have a meaningful rebound above $1,800." Halley predicts that gold's growth in the short term Any rebound will be limited to less than $1810.
StoneX analyst Rhona O'Connell said that real interest rates in the United States are still negative, and the uncertainty of the new crown epidemic is still good for gold, but Powell's re-election will ensure the continuity of Fed policy and put downward pressure on gold. Overall, before the December meeting of the Federal Reserve, gold investor sentiment remained cautious.
Carlo Alberto De Casa, an analyst at Kinesis Money, said: "Sound GDP data can confirm that the US economy is strong and can put more pressure on the Fed to tighten policy. But investors are more interested in inflation data, and it’s more important because Gold is trying to get closer to $1,800."
But the dollar bulls are best not to be complacent
U.S. dollar watchers have not put the US current account and budget deficits in their eyes for a long time, but this situation may change next year, especially if the global economy is running hot and the US economy continues to outperform other countries.
Compared with other countries in the world, the balance of payments of the United States is deteriorating. In the three months to June, the current account deficit was US$190 billion, equivalent to 3.4% of gross domestic product (GDP). It is the largest current account imbalance in the United States since 2007. The current account deficit has exceeded 3% of GDP for five consecutive quarters. According to data from the US Congressional Budget Office, the federal budget deficit next year is estimated to exceed $1 trillion, which is at least 4.7% of GDP.
Structural problems are unlikely to cause a sudden blow to the dollar. Because as the Fed prepares to raise interest rates, while other central banks-especially the European Central Bank and the Bank of Japan-stand still, this will lead to widening of interest rate differentials, which is good for the dollar. But the dollar bulls had better not be complacent about the double deficit problem.
Alan Ruskin, a strategist at Deutsche Bank, said: “You can rest assured that if the dollar starts to continue to weaken, it will be the first stop.” He believes that the current account deficit to GDP ratio reaches or exceeds 4%. A warning sign, if the deficit reaches 5% or more, although it is unlikely, then the dollar will depreciate more severely.
Goldman Sachs analysts believe that the US's huge current account deficit means that the US dollar is overvalued by as much as 13%. They calculated that a deficit of about 2.5% of GDP is a sustainable standard, so the current level is an unfavorable factor for the U.S. dollar.
They wrote: “If the current account deficit is still large even without fiscal stimulus measures, then a weaker dollar may eventually be needed to achieve external balance.” They forecast an average deficit of 3.2% of GDP next year.
The Bank of England raises interest rates in December almost without suspense
Data show that UK companies’ new orders grew strongly in November, while cost pressures hit a new high, which raised the possibility of the Bank of England’s interest rate hike in December. Financial markets believe that the probability of the Bank of England raising interest rates in December is 90%.
Haskell, a member of the Bank of England Monetary Policy Committee (MPC), said on Tuesday that the Bank of England needs to be vigilant against rising labor costs, because the tight job market means that wages may rise faster than productivity and put upward pressure on inflation. The Bank of England previously predicted that the inflation rate next year will reach around 5%.
He said: "The latest data continue to show that the labor market is tight, putting upward pressure on wages. From the perspective of living standards, this is certainly good news, but from the perspective of inflation, this must be related to the increase in productivity. Match, so we must remain vigilant."
The increase in interest rates will not mitigate the direct impact of soaring energy prices and bottlenecks in the global supply chain. But the Bank of England hopes that they can reduce the possibility of spiraling wages and prices, lest the high inflation rate lasts longer. That may bring new selling pressure on gold.
Spot gold is expected to drop to US$1731
On the daily chart, the price of gold is in a downward ((Z)) wave that started from US$1877. It has fallen below the 38.2% target of US$1787, and further dropped to the 61.8% target of US$1731. The ((Z)) wave is a sub-wave of the IV wave that started from 2075 USD.
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