Gold has experienced a "hell" week, and the market outlook is under significant pressure
The end of the week: the PEC index exceeded expectations again
The latest data released on Friday (February 24) showed that the core PCE price index in the United States rose by 4.7% year-on-year in January, higher than the expected 4.3% and the previous value of 4.4%; the core PCE price index rose by 0.6% month-on-month in January, Higher than the expected 0.4% and the previous value of 0.3%; January personal spending rose 1.8% month-on-month, higher than the expected 1.3% and the previous value of -0.2%. In the context of U.S. non-agricultural employment, consumer price index, retail sales and producer price index all higher than expected, the Fed's favorite core PCE inflation indicator also unexpectedly rebounded, triggering a major market reaction, the dollar index closed up on Friday 0.65% to 105.26; U.S. bond 2-year and 10-year yields rose 12 basis points and 7 basis points to 4.820% and 3.947% respectively; gold fell $12 to 1809.87, a decrease of 0.66%.
Money markets are pricing in further upward revisions to Federal Reserve interest rates as uncertainty over the outlook for U.S. inflation grows sharply. According to federal funds rate futures, the market currently expects the Fed's terminal interest rate to reach 5.40% in August, higher than the 5.36% expected on Thursday (February 23); at the same time, the market currently expects the Fed to cut interest rates by 9 months before the end of the year That was down from the 15 basis point rate cut expected on Thursday, meaning markets have all but ruled out a rate cut by the Fed this year.
In general, as the US labor market and economic activities remain strong, US inflation may enter a period of volatility after half a year of slow decline. It is not easy for prices to stabilize, and the Fed may still have a long way to go to raise interest rates Not over. Therefore, until there is no more economic data to prove that the U.S. economy is slowing down and inflation has fallen, there are still reasons to believe that the U.S. dollar and U.S. bond yields will remain strong, and gold prices will continue to face significant downward pressure in the market outlook. May continue.
Fed's interest rate increase is negative for gold prices
Fed officials have recently sent out hawkish signals intensively. Following the release of the PCE data, Cleveland Fed President Loretta Mester noted that the latest inflation report confirms that the Fed needs to raise rates more to ensure that inflation falls back. Boston Fed President Collins also said the Fed must continue to raise interest rates to a sufficiently restrictive level and may need to keep them high for a "longer" period. St. Louis Fed President Bullard urged to speed up the pace of interest rate hikes and quickly rebuild the Fed's credibility.
At the same time, financial markets are starting to doubt the Fed's ability to bring inflation down to its target. A new study criticizing the Fed for its initial slow response to rising prices predicts that the central bank may need to raise interest rates to 6.5% to beat inflation. In the study, five economists and academics argued that policymakers' outlook was too optimistic and that some economic pain would be needed to keep prices in check.
Gold is struggling through the macro storm brought up by the Federal Reserve, and its gains driven by interest rate cut expectations at the beginning of the year have all been erased. OANDA senior market analyst Edward Moya pointed out that the peak of the Fed's policy rate may usher in a major repricing, and some investors now expect it to exceed 6%, which is enough to keep gold prices falling. If gold falls below $1,800, the outlook for gold prices could "go bad" and another $50 drop is possible.
This week's outlook
Since the strong non-farm payrolls in January and the rebound of the Fed's favorite inflation indicator, the market's interest rate hike expectations have risen sharply. To be sure, all eyes will be on economic indicators and what policymakers say, as the Fed’s rate path becomes increasingly elusive. Investors may have to brace for greater volatility in the week ahead.
In terms of data, the most important ones are Monday's monthly rate of durable goods orders in January, Wednesday's February ISM manufacturing PMI and Friday's February ISM non-manufacturing (service industry) PMI. Given that recent economic reports have shown that consumer spending has picked up from last year's downturn, and the labor market remains hot, service industry activity has been expanding moderately, and the possibility of data exceeding expectations again is higher, so the expectation that the Fed's terminal interest rate will rise will be supported. further solidified.
The euro zone will focus on Thursday's initial February CPI annual rate, February CPI monthly rate and January unemployment rate. With the region's economic resilience better than expected and inflation stubbornly high, money markets have ramped up bets on the pace of ECB tightening. The peak of the interest cycle is around 3.75%. On the central bank side, a number of Fed officials will deliver speeches, including Fed Governors Jefferson, Waller and Bowman, Chicago Fed President Goolsbee and Dallas Fed President Logan, who are also 2023 FOMC voters, and 2024 FOMC voters. , Richmond Fed President Barkin. They are expected to emphasize that inflation is sticky and maintain their stance on continuing to raise interest rates.
Gold daily chart, since the peak at the beginning of the month, the accelerated decline of gold price is almost the same as the previous rise, and nearly gave up all the gains since the rise from 1800. Below it is facing the 1780-1805 area, which is the intensive trading range of the previous rise , falling back again is likely to be supported by strong buying, so this week we need to pay attention to the opportunity for gold prices to stop falling and build a bottom after the bad news is exhausted. If the gold price in the market outlook shows a counterattack K-line pattern in the support area, it is expected to start a rebound and return to 1850-1900. If it falls below 1805 and continues to rebound weakly, it will be bearish around 1780-1740 below.
The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.
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