Conflicting economic data; the Federal Reserve does not rule out further interest rate hikes next month. Is a gold price rebound hopeless?
Spot gold closed higher this week for the first time in three weeks. The mixed US non-farm payroll data released overnight, and the US Congress's passage of the debt ceiling bill, have led the market to not rule out another interest rate hike by the Federal Reserve. Next week, Federal Reserve officials will enter a blackout period, and the market will be awaiting US CPI data, which investors need to closely monitor.
Time:
2023-06-03 15:29
First Gold Gold News June 3 Spot Gold This week, spot gold closed higher after a three-week pause. The mixed US May non-farm payroll data released overnight, and the US Congress's passage of the debt ceiling bill, have made it impossible for the market to rule out another rate hike by the Federal Reserve. Next week, Federal Reserve officials will enter a blackout period, and the market will be awaiting US CPI data, which investors need to closely monitor.
Inflation remains the dominant risk
Federal Reserve officials appear poised to end a 10-meeting streak of rate hikes later this month, while leaving the door open for future increases. For investors, whether June will see a rate hike, a skip, or a pause has become a high-stakes guessing game.
Over the past few weeks, Federal Reserve policymakers have strived to maintain their options. Previously, officials who favored more rate hikes have acknowledged reasons to hold steady, while those concerned about higher rates have acknowledged that persistent high inflation may require further action.
The Federal Reserve's new economic projections will be released at the end of the June 13-14 meeting, which will force officials to provide the tough guidance they have been reluctant to offer verbally through numbers.
In this world of conflicting data, inflation remains the dominant risk, but the economy may be on the verge of collapse, so officials will have to take a stand on whether the Fed's current benchmark overnight interest rate range of 5.00%-5.25% is sufficient to lower inflation, and whether it is necessary to risk the economy losing momentum to fight inflation.
Market sentiment is temporarily leaning toward a pause in rate hikes at the upcoming meeting, but the outcome is far from certain, as new inflation data will be released on June 13 after Friday's blowout non-farm payrolls, making it hard to say what might happen next.
Federal Reserve officials will enter a pre-meeting blackout period this weekend, and will have no formal opportunity to reshape market expectations as inflation and other data reports are released during the blackout period.
It is noteworthy that economists, including veteran Fed watchers, are divided into two camps: one believes that inflation and the economy are on the verge of rapid deceleration, while the other believes that the Fed is still prepared to raise rates given persistent inflation, and a few believe that the Fed is achieving a 'soft landing' in the right way, meaning that the economy and inflation are slowing but will not trigger a recession.
The market does not rule out the possibility of another rate hike by the Federal Reserve
Analysts say that with the US Congress passing the debt ceiling deal and the latest non-farm employment report showing strength, the gold market does not rule out the possibility of another rate hike by the Federal Reserve this summer.
The debt ceiling standoff ended before it caused too much damage, with the US House and Senate easily passing the deal.
Non-farm employment data released Friday (June 2) by the US Bureau of Labor Statistics suggests that a recession is not imminent, giving the Federal Reserve room to keep interest rates high for longer.
The market will be closely watching the inflation report for May, due to be released on June 13, which will precede the Federal Reserve's interest rate decision.
“The outlook from the Fed is that rates will remain higher for longer,” said Michael Boutros, senior technical strategist at Forex.com. “Even if the Fed skips in June, another 25 basis points is still in the cards.”
Boutros said that pausing rate hikes is a prudent move by the Fed, but another rate hike later is not impossible.
In terms of data, next week will be relatively quiet, with the inflation report on June 13 seen as a key market driver.
“With the Fed entering its pre-decision quiet period, there will be no officials discussing the outlook for monetary policy next week,” said James Knightley, chief international economist at ING. “Given the importance of the CPI the following week, (other data released next week) will not have much impact on the market.”
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Although gold prices rose this week, market volatility has clearly increased. While the US-UK agreement is symbolic, its content is limited and insufficient to alleviate concerns about a global economic slowdown. Therefore, gold prices will continue to fluctuate between safe havens and policy signals, closely monitoring the Federal Reserve's interest rate expectations and global trade sentiment.