Non-agricultural surprises are good, gold bulls fall short

Gold rose first and then fell last week. At the beginning of the week, due to the fall in the price index, inflation peaked, releasing the pressure on the Fed to raise interest rates continuously and reducing concerns about soaring interest rates. As a result, the US dollar index and US bond yields fell. The rebound started from this; in the middle of the week, the expectation of the Fed raising interest rates increased again, but there were more signs in the United States indicating the speed of economic growth, which promoted the safe-haven demand for gold, and both gold and the US index finally closed up; on Friday, non-agricultural data The unexpected record was good, the expectation of the Fed to continue raising interest rates soared, the US index soared, and gold finally fell under pressure, closing at $1,850.76 per ounce, showing a doji shock.

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The latest US April core PCE price index finally recorded 4.9%, in line with expectations, for two consecutive months of slowdown, and inflation has peaked, thus easing the Fed's aggressive interest rate hike pressure to a certain extent, the interest rate outlook has cooled , the dollar fell under the influence of this, while gold and crude oil rebounded significantly.

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On June 3, local time, U.S. President Biden delivered a speech on the U.S. employment report for May in Delaware, saying that fighting inflation is his top economic priority. Biden said that in addition to the Fed, the other two components of his plan to fight inflation are reducing the cost of living for American households and the federal deficit. Biden said that most American working families are currently facing high oil prices and high prices. Biden said the Russian-Ukrainian conflict has exacerbated these challenges, and he will reduce the pressure on residents by promoting new energy development and reducing housing and medication costs. Regarding the federal deficit, Biden said that under his plan, the U.S. is on track to slash the federal debt by $1.7 trillion this year, contributing to the largest drop in history.

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The high inflation in the United States since the epidemic is caused by the large-scale distribution of cash in a short period of time by the U.S. government with the support of the Federal Reserve’s massive expansion of its balance sheet, resulting in an extreme mismatch between supply and demand. However, due to excessive policy efforts, inflation remains high. And in order to "dump the pot" of inflation in the US Congress, Biden met with Fed Chairman Powell last week, trying to blame the Fed's ineffective policies for the reason for the high inflation in the United States.

After the "Baobao meeting", the market expects that the Fed may have a more aggressive interest rate hike plan. Since entering the second half of the month, the price of gold has maintained a moderate rebound, the geopolitical premium of Russia and Ukraine has begun to fall, market investors are significantly less sensitive to news of the war, and inflation has become the main focus of the market, and it is also the focus that needs to be continued in the future. The direction of inflation has a significant impact on the rise and fall of gold prices.

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Earlier, Atlanta Fed President Bostic's proposal to "pause" interest rate hikes in September was frequently refuted by Fed officials. Last Monday, after Federal Reserve Governor Waller put forward a rebuttal, the market’s expectations for the suspension of interest rate hikes in September “receded”, and the probability of the Fed raising interest rates by 50 basis points in September once rebounded to 50%. On Wednesday, more Fed officials expressed the need to continue raising interest rates.

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After the Federal Reserve's remarks that it will suspend interest rate hikes in September were frequently refuted, interest rate hike expectations have increased again, risk appetite has been suppressed, and risk aversion has returned. Risks brought about by global central banks are facing a more aggressive tightening policy environment. Gold demand. At the same time, worries about economic recession have also increased. The latest Beige Book of economic conditions released by the Federal Reserve shows that the growth rate of 4 regions has slowed down since the last report. pressure, and eventually both closed up

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The interest rate hike directly increases the interest rate of the US money market, which greatly promotes the return of funds to the US dollar. As gold with currency and commodity attributes, the strength of the US index directly suppresses gold, and the focus on inflation is also to capture the Federal Reserve's increase. The trend of interest rates, raising interest rates is the dominant factor affecting the trend of gold throughout the year.

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The non-farm payrolls report released at 20:30 on Friday evening showed that the US non-farm payrolls increased by 390,000 after seasonal adjustment in May, higher than the expected increase of 325,000, the smallest increase since April 2021; the US unemployment rate in May That was unchanged from the previous reading of 3.6% and above expectations of 3.5%.

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After the data was released, the U.S. dollar index reversed its downward trend and rebounded sharply, recovering most of the previous day's decline. Spot gold fell under pressure and fell below $1,860. Employment in industries such as leisure and hospitality, professional and business services, and transportation and warehousing increased significantly, while retail employment declined, the Bureau of Labor Statistics said. At the same time, the report also showed that the monthly average hourly wage rate in the United States in May was 0.3%, lower than expected and the previous value of 0.4%; the annual rate slowed to 5.24% from 5.5% in the previous month. The employment participation rate was 62.3% in May, in line with expectations.

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Market analysts believe that the report showed that U.S. employment grew more than expected in May, and the unemployment rate held steady at 3.6%, indicating a tightening labor market and more labor force participation may ultimately help further curb wage growth that has led to inflationary pressures. Wage growth has slowed from faster growth for most of 2021, and the economy could achieve a soft landing. The positive jobs growth data eased concerns about a potential economic slowdown, meaning the Fed can continue to tighten policy without fear of triggering a sharp recession, underpinning expectations for a rate hike by the central bank. Traders are now pricing in about 200 basis points of rate hikes at the next five Fed meetings, compared with 144 basis points in the next three Fed meetings.

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In view of the previous market expectation that the Fed will raise interest rates in June and July is basically a certainty, this non-farm payroll report continues to increase the possibility of raising interest rates by 50 basis points in September, making the US index return to strength, and gold's earlier gains have been close to All erased. The next step to gauge the extent to which the Fed is likely to preempt rate hikes is this Friday's CPI report.