After a retaliatory rebound, gold prices usher in a critical week

The ups and downs in the financial market last week were reflected in the price trend of gold. First, due to the risk of economic recession caused by the sharp drop in the pound, safe-haven funds poured into the US dollar, and other assets fell; then the British pound purchased bonds to rescue the market, and market sentiment improved and major assets ushered in a retaliatory rebound; The monthly PCE data unexpectedly exceeded expectations, the dollar strengthened again, and the gold price was blocked again. Data will be ushered in this week, which is expected to establish the medium-term trend of the gold price.

The dollar has a retracement demand, and gold has a rebound momentum

Last Wednesday (September 28), the market risk appetite improved. The US dollar index suffered the largest one-day decline in two and a half years. At the same time, the real yield fell sharply in the short term. Two factors boosted the gold price to rebound from recent lows on Wednesday. Nearly $50.

The price of gold suddenly rose from the ground yesterday (September 28). After refreshing the new low of 1615 since April 2020, it suddenly soared, reaching a maximum of US$1663 per ounce and closing at around 1660.

The reason why the price of gold has rebounded in the short term is due to the combined effect of the high dollar and the sharp drop in real yields, and the occurrence of these two major changes points to the same event - the Bank of England rescued the market. On Wednesday afternoon, the Bank of England announced the temporary purchase of long-term government bonds from September 28 to October 14 to prevent the further spread of the financial crisis. The scale of each operation does not exceed 5 billion pounds, and the total size does not exceed 65 billion pounds.

The Bank of England's bailout has two major impacts: On the one hand, the bailout has brought some comfort to the recent global turmoil in financial markets, as investors seem to believe that the Bank of England's case of buying and buying to stop the market from falling will be followed, and market risk appetite The recovery has weakened the demand for the dollar, causing the dollar index to drop 1.29% on Wednesday, which is one of the key factors driving the rebound in gold prices.

On the other hand, the Bank of England's bond purchases directly lowered the yields of British government bonds, but the spillover effect caused the yields of government bonds in other countries to fall sharply. The yield on the 10-year U.S. Treasury bond fell by 21 basis points on Wednesday. The sharp drop in nominal yields has a direct impact on real interest rates. Real yields, measured by the yield on 10-year inflation-protected bonds, tumbled by 25 basis points on Wednesday, another key to boosting the price of gold.

PCE beat expectations, gold prices blocked

On Friday, the U.S. core PCE price index recorded an annual rate of 4.9% in August, the largest increase since April 2022, higher than the expected 4.7%, and the previous value was revised up to 4.7% from 4.6%. The US core PCE price index recorded a monthly rate of 0.6% in August, and the expected w was 0.50%, and the previous value was 0.10%. The monthly rate of personal spending in the United States recorded a monthly rate of 0.4% in August, which was expected to be 0.20% and the previous value was 0.10%.

After the data was released, the U.S. dollar index DXY rose 30 points in the short term. U.S. short-term interest rate futures extended losses as traders increased bets on further rate hikes by the Federal Reserve. Long-term U.S. Treasury yields fell, with the 10-year yield down 2.30 basis points to 3.724%. U.S. stock index futures fell rapidly, with all three major futures turning lower.

The most active gold futures contract on COMEX At 20:30 on September 30, Beijing time, 2,350 lots were traded instantly on the buying and selling board in one minute, with a total contract value of US$391 million.

U.S. funds futures showed traders placing a 68 percent chance the Fed would raise rates by 75 basis points at its November meeting, up from 61 percent before U.S. PCE data was released.

The market's reaction to the stronger-than-expected PCE price index may be short-lived as strong August CPI data drove the dollar index's gains in late September. The Fed has already reacted to rising price pressures in August, and the September CPI data report could have a significant impact on market pricing of the Fed's next rate decision, rather than the August PCE data.

Gold was on track for its biggest weekly gain in seven weeks amid a pullback in the U.S. dollar mid-week, but was set for a sixth straight decline and its worst quarterly performance since March last year.

Recent speeches by Fed officials have consistently underscored their determination to tighten. Cleveland Fed President Mester on Thursday expected rates to be slightly above the Fed's median, as inflation is expected to be more persistent. The Fed needs to keep raising rates, raising the federal funds target rate above 4%. On the same day, St. Louis Fed President Bullard, known as the "Eagle King", said that the Fed will not stop tightening, and the Fed must raise interest rates quickly to reach a minimum appropriate level to deal with inflation. Bullard said inflation will start to fall in 2023, but how fast is uncertain. With the Fed lowering inflation, the U.S. could slip into a recession, but that's not the base case for the U.S.

On the geopolitical side, Russian President Vladimir Putin today attended and delivered a speech at the signing ceremony of the treaty for the annexation of Ukraine to the Russian Federation. Putin said Russia was ready to talk and called on Ukraine to immediately stop military operations and return to the negotiating table. There will be four new regions in Russia, and efforts will be made to increase the level of security in the new (joined) regions, defending Russian lands by any means necessary.

Outlook

This Friday will usher in the latest non-agricultural employment data. Non-agricultural employment is the US economic data that investors will focus on every month. Currently, the market's expectations for the Fed to raise interest rates are rising, and the change in employment will become the basis for whether the Fed will continue to An important basis for hawks.

In terms of technical trends, the price of gold ushered in a strong rebound after a continuous decline, and was significantly suppressed at the 1675 line. This price has become a long-short watershed in the short-term trend. If the bottom of this level is strengthened, the top is expected to see 1700-1730; If the bit continues to be blocked, there is a high probability of returning to the downtrend, and look down at around 1640-1620.