Market sentiment continues, gold prices keep moving up

Gold got off to a solid start to the week as the market is still digesting the impact of a strong U.S. jobs report, judging how much it will affect the Fed. A surge in nonfarm payrolls in July raised the odds of a third straight 75 basis point rate hike by the Federal Reserve in September, which should be negative for gold.

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As the Fed's sharp interest rate hike expectations regain the dominance of the market, the dollar may regain its upward momentum, and the price of gold may drop to $1,750. The US inflation data in July may consolidate the Fed's expectation of a 75 basis point rate hike next month. Gold prices failed to break above $1,800 an ounce, and market sentiment shifted again. The non-farm payrolls report took a toll on gold, at least in the short term.

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U.S. companies have paused the hiring process, but U.S. job growth is rock solid, and now non-farm payrolls rose unexpectedly in July, giving Fed policymakers the confidence to remain hawkish. Fed Governor Bowman said on Saturday (August 6) that the Fed should consider raising interest rates by a further 75 basis points at its September meeting to bring inflation back to its 2% target.

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This week's focus will be on U.S. inflation data to be released on Wednesday (August 10), which may provide more clues about the Fed's rate hike path. The year-on-year growth of U.S. CPI in July is expected to fall by 0.2 percentage points to 8.9%, and oil prices continued to trend downward in July, which is likely to ease inflationary pressures, although inflation continues to remain near a nearly 40-year high.

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With the U.S. economy contracting in the first two quarters of 2022, the definition of a "technical recession" popular in financial markets has been met. However, the labor market has been very strong so far, which will ultimately determine whether the U.S. economy is headed for a true recession as unemployment rises and consumer spending falls.

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In a news conference after the July meeting, Fed Chairman Jerome Powell made clear reference to two jobs reports released ahead of the September meeting that will help determine whether the Fed must put the brakes on raising interest rates. At present, the non-farm payrolls report has been released, showing that the labor market is still hot, and the cooling that the Fed hopes to reduce inflation pressure has failed to materialize. As a result, calls for another 75 basis point rate hike by the Fed in September are likely to grow louder.

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The Fed overestimated its ability to manage the economy. Beginning in March 2020, the Federal Reserve significantly increased the money supply, and the inevitable result was inflation. Changes in inflation data tend to lag behind the performance of economic data. Fed Governor Bowman also reflected on Fed officials’ missteps in dealing with high inflation last year. She said that economic data revisions combined with restrictive forward guidance have constrained the Fed's room to unwind its easing policy action and led to a slow response to rising inflation.

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The July PMI data showed that the current economy is in a state of weak recovery, and the foundation for recovery is not solid. The policy direction in the second half of the year is basically set. There is currently no shortage of liquidity on the currency side, but this liquidity has not further created physical demand. Therefore, the macro policy in the second half of the year is more inclined to turn liquidity into demand rather than demand. Stimulate the economy by flooding. In this case, the market is more dominated by shocks, and it is mainly a structural market. Last week, the market was affected by Pelosi's visit to Taiwan, and risk aversion increased. With Pelosi leaving Taiwan and short-term risk events landing, the market will rebound slightly, but it is difficult to break the shock pattern.