The US debt crisis continues, and gold prices still need momentum.
Recently, the US has released frequent economic data. Regarding gold prices, the market is particularly concerned about the April inflation data and the debt ceiling issue. The inflation issue has a long-term impact, involving monetary policy and the overall economic situation. The decline in April inflation was relatively slow, with core goods and services inflation showing significant stickiness. Although inflation may continue to fall, it still has a considerable gap from the Fed's inflation target, which may alter the market's previous view of interest rate cuts this year. The debt ceiling issue will constitute a short-term risk factor. Although the US government always reaches an agreement on the debt ceiling at the last minute, this process usually causes short-term fluctuations in international gold prices. Overall, the macroeconomic situation will continue to support international gold prices, but the speed and extent of the rise may change with the US economic situation. In the short term, due to market expectations of the Fed's monetary policy and the market disruption caused by the debt issue, international gold prices may experience increased volatility. Cooling Expectations of Interest Rate Cuts Due to energy and food items pulling down overall inflation, the US Consumer Price Index (CPI) inflation in March was reported at 5%, down 1 percentage point from the previous value and below expectations, marking the largest drop since June 2022. Coinciding with banking risks in the US and weakening service sector data, the Fed's monetary policy is in a passive state. Before the May interest rate decision was announced, the market was more optimistic about a shift in monetary policy, believing not only that interest rate hikes would be paused but also that interest rates might be cut this year. As the Fed's interest rate decision announcement approached, international gold prices surged rapidly in advance, but fell after the interest rate hike announcement. This is because Fed Chairman Powell mentioned in the press conference that future monetary policy needs to be determined by the macroeconomic situation. Whether to continue raising interest rates in June or how long interest rates will remain high will depend on changes in US inflation. US inflation in April fell by 0.1 percentage point from the previous value, a slow rate of decline. Energy and used car prices have recently risen significantly month-on-month, which will affect core goods prices. In terms of core services inflation, rental prices lag behind house prices, and the rate of decline is very slow. US inflation is highly sticky, and high wage growth is the main reason why inflation is difficult to alleviate. After the release of the US April inflation data, the market believes that there is a possibility of continued decline in inflation, but the rate of decline will be very slow. Recently, inflation expectation indices have risen, and the market's expectation of interest rate cuts by the Fed this year has cooled. US Debt Crisis A major factor affecting international gold prices in the short term is the US debt ceiling issue. The date when a potential debt default may occur is approaching, with the debt ceiling trigger time brought forward to early June. US Treasury Secretary Yellen warned that a debt default would have a catastrophic impact on the economy and finance, triggering a global economic downturn. The two parties in the US need to reach a compromise on the debt ceiling issue to avoid disaster. US Treasury data shows that the fiscal surplus in April plummeted by 43% year-on-year, once again highlighting the urgency for the two parties to reach a consensus on the debt ceiling. The market has expressed concerns about the risk of debt default, with the market indicator measuring default risk, the US one-year credit default swap (CDS) spread, hitting a record high, and the five-year credit default swap spread reaching its highest level since 2009. Problems arising during the process of resolving the US government's debt ceiling will lead to significant volatility in the market. Due to short-term concerns about debt default, there is selling pressure on US Treasuries, affecting global liquidity, and the US dollar index may rebound in the short term. In the long run, the US government continues to raise the debt ceiling to solve the debt problem, constantly testing the edge of danger in this process, which will severely weaken the dollar's dominance, especially in the current context of de-dollarization, and is also very detrimental to the economy. Insufficient Upward Momentum for Gold Prices It is fairly certain that the US economy is in a downward cycle. The unemployment rate remains at a historical low, labor demand is still far greater than supply, and wage growth is high, giving the US economy some resilience and making inflation quite sticky. For international gold prices to gain stronger upward momentum, a cooling of the US labor market is a prerequisite. In the short term, the market's changed expectations for Fed interest rate hikes this year, and the US debt issue have increased market concerns about global dollar liquidity. The US dollar index may rebound in the short term, and US Treasury yields may also fluctuate, putting pressure on international gold prices and leading to weak upward momentum in the short term. In the long term, the US labor market is cooling, the number of job openings is declining, and the resilience of the labor market is unlikely to be sustained for a long time. By the second half of the year, labor market supply and demand will tend towards equilibrium, and the resilience of the US economy will gradually fade. It is expected that the economy will perform weakly this year, and it is not ruled out that various risk factors will accumulate to create significant pressure, leading to an accelerated decline in the US economy in the third quarter. The overall upward space for international gold prices still exists.
Time:
2023-05-13 17:24
US data releases have been frequent recently. Regarding gold prices, the market is particularly focused on April's inflation data and the debt ceiling issue. Inflation is a longer-term concern, affecting monetary policy and the overall economic situation. The slowdown in April's inflation was relatively slow, with core goods and services inflation showing significant stickiness. Although inflation may continue to fall, it remains significantly distant from the Fed's inflation target, potentially altering the market's previous view of interest rate cuts this year.
The debt ceiling issue will pose a short-term risk factor. While the US government always reaches an agreement on the debt ceiling at the last minute, this process typically causes short-term fluctuations in international gold prices. Overall, the macroeconomic situation will continue to support international gold prices, although the speed and extent of any increase may change with the US economic situation. In the short term, due to market expectations differing from the Fed's monetary policy and the debt issue causing market disruptions, international gold prices may experience increased volatility.
Cooling Expectations of Interest Rate Cuts
Due to energy and food items pulling down overall inflation, the US Consumer Price Index (CPI) inflation in March was reported at 5%, down 1 percentage point from the previous value and below expectations, marking the largest drop since June 2022. This coincided with banking risks in the US, and services data also weakened, putting the Fed's monetary policy in a reactive state. Before the May interest rate decision was announced, the market was more optimistic about a shift in monetary policy, believing not only that interest rate hikes would pause but also that rate cuts were possible this year.
As the Fed's interest rate decision announcement approached, international gold prices surged rapidly in advance, but fell after the rate hike announcement. This was because Fed Chairman Powell mentioned in the press conference that future monetary policy would need to be determined by macroeconomic conditions. Whether interest rates will continue to rise in June or remain high in the future will depend on changes in US inflation.
US inflation in April fell by 0.1 percentage point from the previous value, a relatively slow decline. Energy and used car prices have recently risen significantly month-on-month, affecting core goods prices. In terms of core services inflation, rental prices lag behind house prices, and the decline is very slow. US inflation is highly sticky, and high wage growth is the main reason why inflation is difficult to alleviate.
After the release of the April US inflation data, the market believes that inflation is likely to continue to decline, but at a very slow pace. The recent inflation expectation index has risen, and market expectations for Fed interest rate cuts this year have cooled.
US Debt Crisis
A major factor affecting international gold prices in the short term is the US debt ceiling issue. The date on which a potential debt default may occur is drawing closer, with the debt ceiling trigger date brought forward to early June. US Treasury Secretary Yellen warned that a debt default would have catastrophic economic and financial consequences, triggering a global economic downturn. The two US parties need to reach a compromise on the debt ceiling issue to avoid disaster.
US Treasury data shows that the April fiscal surplus fell by 43% year-on-year, further highlighting the urgency for the two parties to reach a consensus on the debt ceiling. The market has expressed concerns about the risk of default, with the market indicator measuring default risk, the US one-year credit default swap (CDS) spread, hitting a record high, and the five-year CDS spread reaching its highest level since 2009. Issues arising during the resolution of the US government debt ceiling will lead to significant market volatility.
Due to short-term concerns about debt default, there is selling pressure on US Treasuries, affecting global liquidity, and the US dollar index may rebound in the short term. In the long term, the US government continues to raise the debt ceiling to address debt problems, constantly testing the limits of danger. This will severely weaken the dollar's dominance, especially in the current context of de-dollarization, and is also very detrimental to the economy.
Insufficient Upward Momentum for Gold Prices
It is fairly certain that the US economy is in a downward cycle. The unemployment rate remains at a historic low, labor demand still far exceeds supply, and wage growth is high, giving the US economy some resilience and making inflation quite sticky. For international gold prices to gain stronger upward momentum, a cooling of the US labor market is a prerequisite.
In the short term, changes in market expectations regarding Fed interest rate hikes this year, and the US debt issue increasing market concerns about global dollar liquidity, have led to a short-term rebound in the US dollar index and potential volatility in US Treasury yields. This has increased pressure on international gold prices, resulting in weak upward momentum in the short term.
In the long term, the US labor market is cooling, with job openings declining. The resilience of the labor market is unlikely to be sustained for a long time, and by the second half of the year, labor market supply and demand will tend towards equilibrium, and the resilience of the US economy will gradually fade. It is expected that the economy will perform weakly this year, and it is not ruled out that various risk factors will accumulate to create significant pressure, leading to an acceleration in the decline of the US economy in the third quarter. The overall upward space for international gold prices still exists.
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