Precious metals continue to decline and bottom out
The Ineffectiveness of US Interest Rate Hikes To curb high inflation, the Federal Reserve's continued aggressive interest rate hikes before the end of the year are almost certain. At the same time, affected by the global economic slowdown and the Russia-Ukraine conflict, the prolonged decline of gold and silver prices is clearly not over, and the future market will continue to fluctuate downwards. Last week, sensitive market participants found that the gains in gold and silver during the National Day holiday had disappeared, and the prolonged decline of gold and silver prices clearly has not ended. It is worth noting that the interest rate hike process initiated by the Federal Reserve in March has lasted for more than half a year, but inflation remains high. The expectation of the Federal Reserve continuing to aggressively raise interest rates before the end of the year is also very high. US Inflation Expectations Rise Instead of Falling The Federal Reserve raised interest rates by 25 basis points for the first time in March this year, 50 basis points in May, and then 75 basis points in June, July, and September, for a total of 5 rate hikes, totaling 300 basis points. The aim was to cool down the excessively high inflation level, but the result was very disappointing to the Federal Reserve. The US August PCE price index, announced on September 30, rose 6.2% year-on-year, exceeding market expectations of 6%. The August core PCE price index, which the Federal Reserve attaches the most importance to, rose 4.9% year-on-year, exceeding the expected 4.7%, and the year-on-year growth rate hit a new high since May this year. On October 12, the US September PPI rose 8.5% year-on-year, exceeding the expected 8.4%. Excluding the more volatile food and energy prices, the US September core PPI rose 7.2% year-on-year, exceeding the expected 7.3%. On October 13, the US September CPI rose 8.2% year-on-year, exceeding market expectations of 8.1%. After excluding the more volatile food and energy prices, the September core CPI rose 6.6% year-on-year, exceeding the expected 6.5%, setting a new high since August 1982. Overall, due to the continued rise in energy, food, and service costs, the increases in the US September CPI, PPI, and PCE all significantly exceeded the Federal Reserve's own target of around 2% stable price inflation. This indicates that inflationary pressures will take longer than expected to ease, and will also push the Federal Reserve to continue on the path of aggressive interest rate hikes. In addition, inflation expectations have also made the Federal Reserve uneasy. The final value of the University of Michigan's 1-year inflation expectation for September, announced on September 30, was 4.7%, exceeding market expectations of 4.6%; the 5-year inflation expectation was 2.7%, the lowest since April 2021, exceeding market expectations of 2.8%. However, on October 14, the 1-year inflation expectation for October rose to 5.1%, the first increase since March, exceeding the expected 4.6%; the 5-year inflation expectation was 2.9%, exceeding the expected 2.8%. After another 75-basis-point rate hike in September, inflation expectations rose instead of falling, which clearly made the Federal Reserve anxious. Market Hopes for a Shift by the Federal Reserve After a large amount of monetary easing during the epidemic, the US economy seemed prosperous, but there were undercurrents beneath the surface. The Chicago PMI reading announced on September 30 was 45.7, significantly lower than market expectations of 51.8, not only below the boom-bust line but also significantly lower than 52.2 in August, setting a new low since June 2020. The US September ISM manufacturing index announced on October 3 fell to 50.9, the lowest since May 2020, and closer to a complete standstill. The US Department of Labor's Job Openings and Labor Turnover Survey (JOLTS) data released on October 4 showed that US job openings fell from 11.2 million in July to 10.1 million in August, falling to the lowest point since June 2021, indicating that US labor demand is slowing down. The US September non-farm employment report released on October 7 showed an increase of 263,000 jobs, exceeding the expected 255,000; the September unemployment rate was 3.5%, exceeding the expected 3.7%; average hourly earnings increased by 5% year-on-year, exceeding the expected 5.1%; and the labor force participation rate slightly fell to 62.3% from 62.4% in August. After the release of such strong September non-farm data, the federal funds futures market showed a 92% probability of a 75-basis-point rate hike by the Federal Reserve in November, higher than the 85.5% before the release of the September non-farm employment report. Overall, recently, except for relatively good employment data, almost all US economic indicators have been declining and weakening, while the economy is still suffering from high inflation. On October 13, the US 10-year Treasury yield rose 17 basis points to close at 3.97%; the US 2-year Treasury yield rose 20 basis points to close at 4.47%; the 5-year Treasury yield was 4.21%; and the US 30-year Treasury yield rose about 15 basis points to 3.98%, the highest since August 2011. The continued inversion of the yield curve between long-term and short-term US Treasury bonds is a clear warning sign of a US recession. It is precisely because the US economy is mixed, with inconsistent data, that the US market repeatedly treats bad data as "good news." Although the market hopes that the Federal Reserve will end aggressive interest rate hikes early, or even resume rate cuts, this is clearly impossible in the short term. Waiting for the Asset Allocation Window to Arrive On October 3, the United Nations Conference on Trade and Development (UNCTAD) released a report titled "A Fragmenting World: The Development Prospects." The report points out that if some developed economies do not quickly adjust their major fiscal and monetary policies, the world will fall into recession and long-term economic stagnation. The report predicts that the world economy will slow to 2.5% in 2022 and fall to 2.2% in 2023. This economic slowdown will cause global GDP to fall below its pre-pandemic trend and cause a loss of more than $17 trillion in global productivity. In its latest update of the October World Economic Outlook report, the International Monetary Fund (IMF) once again lowered its forecast for global GDP growth next year, predicting that global GDP growth will fall from 6.0% in 2021 to 3.2% this year and further to 2.7% in 2023. IMF chief economist Pierre-Olivier Gourinchas warned in the report that the global economy is facing a storm, and financial turmoil is likely to occur soon, causing investors to seek safe-haven assets such as US Treasury bonds, thus pushing the US dollar further upwards. The Federal Reserve's own data also shows that global central banks sold as much as $29 billion in US Treasuries in the week ending October 5, with sales reaching $81 billion over the past four weeks, the largest monthly sales since the outbreak of the epidemic in March 2020. Meanwhile, the latest data from the World Gold Council and the IMF show that in recent years, as global central banks' holdings of US Treasuries have declined, global central banks' gold reserves have risen sharply to record highs to hedge against the risk of US Treasury exposure. According to relevant media reports, since the end of April, 527 tons of gold have flowed out of the vaults of the two largest Western gold markets in New York and London. In addition, China's gold imports in August hit a four-year high. On October 16, Federal Reserve hawk Brad indicated at the annual meeting of the IMF and the World Bank that the Federal Reserve may raise interest rates by 75 basis points at both the November and December meetings, but also said that it was too early to make such a decision. Janet Yellen, who once served as Federal Reserve chair and is now US Treasury secretary, admitted that the developed countries' tight monetary policies to combat inflation have had spillover effects on developing economies, exacerbating their debt problems, but fighting inflation is the Biden administration's top priority. From this perspective, to curb high inflation, the Federal Reserve's continued aggressive interest rate hikes before the end of the year are almost certain. Under such bearish external conditions, it is normal for gold and silver to continue to fluctuate downwards. The US economy slowing down or even sliding into recession is also almost certain. Coupled with the global economic slowdown and the Russia-Ukraine conflict, gold and silver will continue to decline and bottom out. In addition, when the current Federal Reserve interest rate hike cycle is nearing its end, gold will usher in the starting point of a long-term upward trend, which will be a precious window for gold asset allocation.
Time:
2022-10-18 16:32
US interest rate hikes prove ineffective
To curb high inflation, the Federal Reserve's continued aggressive interest rate hikes before the end of the year are almost certain. Meanwhile, affected by the global economic slowdown and the Russia-Ukraine conflict, the long and slow decline of gold and silver clearly has not ended, and the market will continue to fluctuate downwards.
Last week, sensitive market participants found that the gains in gold and silver during the National Day holiday had all disappeared, and the long and slow decline of gold and silver clearly has not ended. It is worth noting that the Federal Reserve's interest rate hike process, which began in March, has lasted more than half a year, but inflation remains high. The expectation of the Federal Reserve continuing to aggressively raise interest rates before the end of the year is also very high.
US inflation expectations rise instead of falling
The Federal Reserve first raised interest rates by 25 basis points in March this year, 50 basis points in May, and then three consecutive increases of 75 basis points in June, July, and September, totaling five rate hikes and 300 basis points in total. The aim was to cool down the excessively high inflation level, but the result was very disappointing to the Federal Reserve. The US August PCE price index, announced on September 30, increased by 6.2% year-on-year, exceeding market expectations of 6%. The August core PCE price index, which the Federal Reserve values most, increased by 4.9% year-on-year, exceeding the expected 4.7%, and the year-on-year growth rate reached its highest since May this year. On October 12, the US September PPI was announced to have increased by 8.5% year-on-year, exceeding the expected 8.4%. Excluding the more volatile food and energy prices, the US September core PPI increased by 7.2% year-on-year, exceeding the expected 7.3%. On October 13, the US September CPI was announced to have increased by 8.2% year-on-year, exceeding market expectations of 8.1%. After excluding the more volatile food and energy prices, the September core CPI increased by 6.6% year-on-year, exceeding the expected 6.5%, setting a new high since August 1982.
Overall, due to the continued rise in energy, food, and service costs, the increases in the US September CPI, PPI, and PCE all significantly exceeded the Federal Reserve's own target of around 2% stable price inflation. This indicates that inflationary pressure will take longer than expected to ease, and will also encourage the Federal Reserve to continue on the path of aggressive interest rate hikes.
In addition, inflation expectations also worry the Federal Reserve. The final value of the University of Michigan's 1-year inflation expectation for September, announced on September 30, was 4.7%, exceeding market expectations of 4.6%; the 5-year inflation expectation was 2.7%, the lowest since April 2021, exceeding market expectations of 2.8%. However, on October 14, the 1-year inflation expectation for October rose to 5.1%, the first increase since March, exceeding the expected 4.6%; the 5-year inflation expectation was 2.9%, exceeding the expected 2.8%. After another 75-basis-point rate hike in September, inflation expectations rose instead of falling, which clearly caused anxiety for the Federal Reserve.
Market hopes for a Fed pivot
After a large amount of monetary easing during the epidemic, the US economy seems prosperous, but there are undercurrents beneath the surface. The Chicago PMI reading announced on September 30 was 45.7, below market expectations of 51.8, not only below the prosperity and decline line, but also significantly lower than 52.2 in August, reaching a new low since June 2020. The US September ISM manufacturing index announced on October 3 fell to 50.9, the lowest since May 2020, and closer to a complete standstill. The US Department of Labor's Job Openings and Labor Turnover Survey (JOLTS) data released on October 4 showed that US job openings fell from 11.2 million in July to 10.1 million in August, reaching a low point since June 2021, indicating that US labor demand is slowing down. The US September non-farm employment report released on October 7 showed an increase of 263,000 jobs, exceeding the expected 255,000; the September unemployment rate was 3.5%, exceeding the expected 3.7%; average hourly earnings increased by 5% year-on-year, exceeding the expected 5.1%; and the labor force participation rate slightly fell to 62.3% from 62.4% in August. After the release of such strong September non-farm data, the federal funds rate futures market showed a 92% probability of a 75-basis-point rate hike by the Federal Reserve in November, higher than the 85.5% before the release of the September non-farm employment report. Overall, recently, except for relatively good employment data, almost all US economic indicators have been declining and weakening, while the economy is still suffering from high inflation.
On October 13, the yield on the US 10-year Treasury note rose 17 basis points to close at 3.97%; the yield on the US 2-year Treasury note rose 20 basis points to close at 4.47%; the yield on the 5-year Treasury note was 4.21%; and the yield on the US 30-year Treasury note rose about 15 basis points to 3.98%, the highest since August 2011. The continued inversion of the yield curve on US Treasury bonds is a clear warning sign of a US recession. It is precisely because the US economy is mixed, with inconsistent data, that the US market repeatedly treats bad data as "good news." Although the market hopes that the Federal Reserve will end aggressive interest rate hikes early, or even resume rate cuts, this is clearly impossible in the short term.
Waiting for the asset allocation window to open
On October 3, the United Nations Conference on Trade and Development (UNCTAD) released its report, "A Fragmenting World: The Development Prospects." The report points out that if some developed economies do not quickly adjust their major fiscal and monetary policies, the world will fall into recession and long-term economic stagnation. The report predicts that world economic growth will slow to 2.5% in 2022 and fall to 2.2% in 2023. This economic slowdown will cause global GDP to fall below its pre-pandemic trend and cause a loss of more than $17 trillion in global productivity.
In its latest October update of the World Economic Outlook, the International Monetary Fund (IMF) once again lowered its forecast for global GDP growth next year, predicting that global GDP growth will fall from 6.0% in 2021 to 3.2% this year and further to 2.7% in 2023. IMF chief economist Pierre-Olivier Gourinchas warned in the report that the global economy faces a storm and that financial turmoil is likely to occur soon, causing investors to seek safe havens in investment assets such as US Treasury bonds, thus further strengthening the US dollar. The Federal Reserve's own data also shows that global central banks sold as much as $29 billion in US Treasury bonds in the week ending October 5, with sales reaching $81 billion over the past four weeks, the largest monthly sales since the outbreak of the epidemic in March 2020.
Meanwhile, the latest data from the World Gold Council and the IMF show that in recent years, as global central banks' holdings of US Treasury bonds have declined, global central banks' gold reserves have risen sharply to record highs to hedge against the risk of exposure to US Treasury bonds. According to relevant media reports, since the end of April, 527 tons of gold have flowed out of the vaults of the two largest Western gold markets in New York and London. In addition, China's gold imports in August hit a four-year high.
On October 16, Federal Reserve hawk Brad indicated at the IMF and World Bank's Annual Meetings that the Fed may raise interest rates by 75 basis points at both the November and December meetings, but also stated that it is too early to make such a decision. Janet Yellen, former Federal Reserve Chair and current US Treasury Secretary, acknowledged that the developed countries' tight monetary policies to combat inflation have spillover effects on developing economies, exacerbating their debt problems, but fighting inflation is the Biden administration's top priority. From this perspective, it seems certain that the Fed will continue to aggressively raise interest rates before the end of the year to curb high inflation. Under such bearish external conditions, it is normal for gold and silver to continue to fluctuate downwards.
It is also almost certain that the US economy will slow down or even slide into recession, coupled with the global economic slowdown and the Russia-Ukraine conflict, gold and silver will continue to bottom out during the decline. In addition, when this Fed interest rate hike cycle nears its end, gold will usher in the starting point of a long-term upward trend, which will be a valuable window for gold asset allocation.
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