The Fed is at the end of the game, and gold has a good opportunity to rise

Gold rose unexpectedly after the release of the non-agricultural data last Friday (November 4), rising by more than $50 from a low of $1,628 to an intraday high of $1,682, an increase of 3.12%, setting a third since the Fed's unlimited quantitative easing in 2020. After the Fed raised interest rates by 75 basis points for four consecutive times, the market's bets on the Fed's monetary policy shift gradually increased, and the unemployment rate in the non-agricultural data last Friday further climbed to 3.7%, which further supported the market's expectations. .

Gold hits third-biggest one-day gain in nearly 2 years

Gold rose unexpectedly and violently after the release of non-agricultural data on Friday (November 4), rising more than $50 (3.12%) from a low of $1,628 to an intraday high of $1,682, setting a record since the Fed’s unlimited quantitative easing in 2020. The three major gains After the Fed raised interest rates by 75 basis points for four consecutive times, the market's bets on the Fed's monetary policy shift gradually increased. The unemployment rate in Friday's non-farm payrolls data climbed further to 3.7%, further supporting the market's expectations.

The interest-free asset gold gradually emerged at this stage. Specifically, the liquidity crisis in the U.S. Treasury bond market is undoubtedly the biggest positive for gold.

It is worth noting that the Federal Reserve's financial stability report released on Friday (November 4) warned that if interest rates rise above expected levels, financial distress may occur, thereby damaging the economy. And continued sharp rate hikes could eventually lead to heightened market volatility, tight liquidity and further declines in asset prices, including real estate, which surged in the era of ultra-low interest rates. The report underscores the risks of its efforts to rein in stubborn inflation.

Furthermore, the Financial Stability Report states that leverage in some non-banking financial sectors (shadow banking) appears to be above average, but the lack of available data makes it difficult to assess specific consequences.

The report also highlighted risks to the U.S. Treasury market. The report noted that the current job market remains very tight, inflation is well above the 2% target, and U.S. Treasury yields are now near or above the median level of the past 25 years. By contrast, model estimates of the nominal term premium for U.S. Treasuries, a measure of the compensatory yield required by investors to hold longer-dated Treasuries rather than shorter-dated Treasuries, have barely changed and are low relative to long-term historical levels. Liquidity measures such as market depth show that liquidity in the U.S. Treasury market has been below historical standards.

This means that liquidity is more sensitive to the actions of liquidity providers, who use high-frequency trading strategies to replenish orders quickly, the report explained. "This dependence could be a source of vulnerability, further increasing the likelihood of a sharp deterioration in liquidity.

Focus on CPI this week

Undoubtedly, a series of signs are showing that the Fed will become very cautious in determining the actions of further sharp interest rate hikes to control inflation, which also parses the "hawk and dove" of Fed Chairman Powell after the interest rate decision on November 2. Statement, because the core of controlling inflation is to suppress inflation expectations.

In the face of the "choose one" situation in the face of economic and inflation prospects, the Federal Reserve is likely to choose to suspend interest rate hikes to wait and see the performance of inflation and economic data. Therefore, the CPI data to be released this week is particularly important. Once there is evidence that the CPI has peaked and fell, it will inevitably further push gold upwards.

Given there is still uncertainty about whether the Fed will really slow down the pace of interest rate hikes as the market wants, investors who are bullish on gold prices still need to wait patiently for the node after mid-November. Short-term gold volatility may increase or suggest that a bottom is still being built. , be patient with time.

Outlook

The daily chart shows that gold continued to stabilize at the support of the $1600-1620 area. There is strong support in this area, and there is still further momentum for a rebound in the short term, and the top can focus on the resistance in the $1688-1700 area. Overall, although gold has clearly bottomed out, the overall trend has not broken away from the downtrend since June 2022, so investors can focus on the support near $1,600 and wait patiently for the critical time after mid-November node.