Spot gold strengthens, the dollar struggles to fall, this signal suggests the Fed's hawkish stance may go further.
On Thursday, April 20, international gold prices rebounded, attempting to further distance themselves from the low of $1969.14 per ounce reached the previous day, a new low since April 3. However, the decline in the dollar was limited, and investors are still grappling with the possibility of further interest rate hikes by the Federal Reserve to curb inflationary pressures. As of 19:57 Beijing time, spot gold rose 0.35% to $2001.88 per ounce; the COMEX gold futures contract rose 0.31% to $2013.6 per ounce; and the US dollar index fell 0.03% to 101.928. The CME's FedWatch tool shows that the market expects an over 80% probability of a 25 basis point rate hike by the Fed in May, with rates remaining in the 5.00%-5.25% range in the following months, and a rate cut beginning as early as November. Could the Fed continue tightening after May? However, given that inflation remains at double the Fed's 2% target, the labor market remains strong, and banking pressures have significantly eased in recent weeks, some institutions do not rule out the possibility that the Fed will continue to raise interest rates after May and will not cut rates this year. Andrew Hollenhorst, Citi's chief US economist, said: "If the labor market remains resilient and inflation persists—as we forecast—the Fed may not only raise rates in May, but also again in June and July. The risks are two-sided, but we maintain our forecast for a terminal policy rate range of 5.50%-5.75%." Michael Gapen, Bank of America Securities' chief US economist, said: "On the data front, while inflation moderated in March, there's still a lot of work to do to get back to the 2% target. We maintain our forecast for the Fed to begin cutting rates in March 2024. If financial system stress eases in the near term, we can't rule out that stronger macroeconomic data would lead the Fed to hike further after May." Peter Fertig, an analyst at Quantitative Commodity Research, said that the European Central Bank and the Bank of England are likely to continue raising interest rates to lower inflation, which may also be the path forward for the Fed, as core inflation in the US remains high. The US two-year Treasury yield, which typically reflects near-term interest rate expectations, has surged nearly 75 basis points in the past month. This reflects the fact that still-strong economic data has reduced the likelihood of the Fed cutting rates this year, and has curbed gold price gains. Williams: Inflation remains a problem Federal Reserve officials will enter a blackout period before their May policy meeting this Saturday, April 22, and investors are closely watching for signals on the interest rate outlook that may be released by Fed officials who are about to speak. New York Fed President Williams said on Wednesday, April 19, that current inflation levels remain problematic and that the Fed will take action to lower inflation. He believes that economic growth will slow this year but will not fall into recession, before rebounding next year. Williams did not comment further on the future direction of monetary policy. However, he noted that the central bank's recently released forecasts suggest further tightening of monetary policy to help lower inflation. He also did not refute market expectations of how the Fed will manage interest rates. Morgan Stanley's first-quarter profits, released on Wednesday, exceeded expectations, and the upbeat performance of major US banks eased concerns about a widening crisis following the collapse of Silicon Valley Bank and Signature Bank last month. Sim Moh Siong, a currency strategist at DBS Bank, said that US banks' funding conditions are stabilizing, and coupled with the hawkish comments we've heard from Fed officials, this has limited the dollar's decline. Banking pressures However, a recession could limit the Fed's ability to continue raising interest rates, especially since most of the previous rate hikes have not yet had a real impact on the economy. Williams also noted that recent banking pressures could put pressure on economic activity. Williams also said that the banking pressures that began last month appear to be cooling. But he added that these troubles could make credit more expensive and harder to obtain, which in turn would dampen economic growth. "It's too early to gauge the extent and duration of these impacts, and I will be closely monitoring the evolution of credit conditions and their potential impact on the economy." Independent analyst Ross Norman said: "Given the pressure on the dollar, gold is performing well, and the path of least resistance seems to be higher again." He added that weaker dollar will further benefit gold prices as the Fed nears the end of its tightening cycle. The full impact of turmoil in credit markets on the economy will soon become clear, after which we may see significant adjustments in interest rate expectations, bond markets, and even gold prices. If the current hawkish bets on the Fed quickly fade, it may not be long before gold prices hit record highs. Spot gold looks to $2020 On the daily chart, gold prices have started an upward ((3)) wave from $1969, with resistance above looking towards the 61.8% target of $2020. The ((3)) wave is a sub-wave of the upward iii wave that started from $1949. On the hourly chart, gold prices have started an upward (3) wave from $1990, with resistance above looking towards the 76.4% target of $2011. The (3) wave is a sub-wave of the ((3)) wave.
Time:
2023-04-21 08:57
On Thursday, April 20, international gold prices rose again, attempting to further distance themselves from the new low of $1969.14 per ounce reached the previous day, the lowest since April 3. However, the decline in the dollar was limited, and investors were still grappling with the possibility of further interest rate hikes by the Federal Reserve to curb inflationary pressures. As of 7:57 PM Beijing time, spot gold was up 0.35% to $2001.88 per ounce; the main COMEX gold futures contract was up 0.31% to $2013.6 per ounce; and the US dollar index fell 0.03% to 101.928.
The CME's FedWatch tool shows that the market expects an over 80% probability of a 25 basis point rate hike by the Fed in May, with interest rates remaining in the 5.00%-5.25% range in the following months, and rate cuts beginning as early as November.
Could the Fed continue tightening after May?
However, given that inflation remains at double the Fed's 2% target, the labor market remains strong, and banking pressures have significantly eased in recent weeks, some institutions have not ruled out the possibility that the Fed will continue to raise interest rates after May and will not cut rates this year.
Andrew Hollenhorst, Citi's chief US economist, said: "If the labor market remains resilient and inflation persists—as we forecast—the Fed may not only raise rates in May, but also again in June and July. The risks are two-sided, but we maintain our forecast for a terminal policy rate range of 5.50%-5.75%."
Michael Gapen, Bank of America Securities' chief US economist, said: "On the data front, while inflation moderated in March, there's still a lot of work to do to get back to the 2% target. We maintain our expectation that the Fed will begin cutting rates in March 2024. If financial system stress abates in the near term, we can't rule out that stronger macroeconomic data would lead the Fed to further raise rates after May."
Peter Fertig, an analyst at Quantitative Commodity Research, said that the European Central Bank and the Bank of England are likely to continue raising interest rates to lower inflation, which may also be the path forward for the Fed, as core inflation in the US remains high.
The US two-year Treasury yield, which typically reflects near-term interest rate expectations, has surged nearly 75 basis points in the past month, also reflecting the fact that still-strong economic data has reduced the likelihood of the Fed cutting rates this year and has curbed gold price gains.
Williams: Inflation remains a problem
Federal Reserve officials will enter a blackout period before their May policy meeting this Saturday, April 22, and investors are closely watching for signals that Fed officials who are about to speak may send about the interest rate outlook.
New York Fed President Williams said on Wednesday, April 19, that the current level of inflation remains problematic and that the Fed will take action to lower inflation. He believes that economic growth will slow this year but will not fall into recession, then rebound next year.
Williams did not comment further on the future direction of monetary policy. However, he noted that the central bank's recently released forecasts suggest further tightening of monetary policy to help lower inflation. He also did not refute market expectations of how the Fed will manage interest rates.
Morgan Stanley's first-quarter profits, released on Wednesday, exceeded expectations, and the upbeat performance of major US banks eased concerns about a widening crisis following the collapse of Silicon Valley Bank and Signature Bank last month.
Sim Moh Siong, a currency strategist at Oversea-Chinese Banking Corporation, said that US banks' funding conditions are stabilizing, coupled with the hawkish comments we've heard from Fed officials, so this has limited the dollar's decline.
Banking pressure
However, a recession could limit the Fed's ability to continue raising interest rates, especially since most of the previous rate hikes have not yet had a real impact on the economy. Williams also noted that recent banking pressures could put pressure on economic activity.
Williams also said that the banking pressures that began last month appear to be cooling. But he added that these troubles could make credit more expensive and harder to obtain, which in turn would dampen economic growth. "It's too early to gauge the extent and duration of these effects, and I will be closely monitoring the evolution of credit conditions and their potential impact on the economy."
Independent analyst Ross Norman said: "Given the pressure on the dollar, gold is performing well, and the path of least resistance seems to be higher again." He added that a weaker dollar will further benefit gold prices as the Fed nears the end of its tightening cycle.
The full impact of turmoil in the credit markets on the economy will soon become clear, after which we may see significant adjustments in interest rate expectations, bond markets, and even gold prices. If the current hawkish bets on the Fed quickly fade, then it may not be long before gold prices hit record highs.
Spot gold could rise to $2020
Looking at the daily chart, gold prices have started an upward ((3)) wave from $1969, with resistance above at the 61.8% target of $2020. The ((3)) wave is a sub-wave of the upward iii wave that started from $1949. Looking at the hourly chart, gold prices have started an upward (3) wave from $1990, with resistance above at the 76.4% target of $2011. The (3) wave is a sub-wave of the ((3)) wave.
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