Signs of Resurgent Inflation in the US; Will a Wave of Defaults Return? Beware of the Fed's Hawkish Signals Suppressing Gold
On September 18, during the European trading session, spot gold continued to fluctuate narrowly around the $1930 per ounce mark. Last week, the CPI data released by the Federal Reserve showed early signs of a resurgence in inflation, coupled with the strike by American auto workers, raising market concerns about a renewed rise in inflation. The probability of the Federal Reserve not raising interest rates at this week's upcoming interest rate decision is 79%, but there is still debate in the market about whether it will raise rates again. On Monday (September 18), spot gold opened at $1923.51 per ounce. As of press time, spot gold is currently at $1926.35 per ounce, up 0.13%. Oleg Melentyev, credit strategist at Bank of America, said that inflation in the United States is showing early signs of a resurgence, and if inflation accelerates from here, the default rate of high-yield debt issuers in the United States could surge. Even without considering rising interest costs, persistent increases in price levels will put pressure on corporate profits. Melentyev wrote in a report on Friday: "A 3% inflation rate is manageable for most junk-rated companies, but a 4% inflation rate will put pressure on them, and a 5% inflation rate could trigger a full-blown default wave." Melentyev believes this wave could push the cumulative default rate of high-yield debt to 15%, significantly higher than the current level. Data from Fitch Ratings shows that about 2.5% of US high-yield debt defaulted in the past 12 months. Melentyev wrote that a sustained 4% inflation rate could push the cumulative default rate to 10%. Data released by the US Bureau of Labor Statistics on Wednesday showed that the overall inflation rate last month was 3.7% compared to August 2022, but the core consumer price index, which excludes food and energy costs, rose 0.3% month-on-month. This is the first month-on-month acceleration since February. Melentyev said that last week's CPI report reinforced our view that the easy phase of fighting inflation is over. Strikes by auto industry workers could lead to wage increases, while rising oil prices and reaccelerating rental prices mean that keeping inflation below 3% "will be a struggle." This week, the Federal Reserve will hold its sixth Federal Open Market Committee (FOMC) meeting of the year. The Federal Reserve holds eight FOMC meetings each year, at which members discuss their economic forecasts and vote on any changes to monetary policy, such as interest rate hikes or cuts. Economists and the financial industry expect the Federal Reserve to leave the benchmark federal funds rate unchanged for the second consecutive meeting. Since the March 2022 meeting, the Federal Reserve has raised interest rates at every consecutive meeting. At the March 2022 meeting, they began a round of aggressive and restrictive tightening, raising rates from 0-0.25% to the current fixed rate of 5.25%-5.5%. This assumption can also be seen in the CME Group's Fed Watch tool, which currently predicts a 97% probability that the Fed will not raise rates this week. The Federal Reserve's major monetary policy changes are data-driven, and the data the Fed is looking for is confirmation that inflation is moving toward its 2% target. There is some debate about whether the Fed will raise rates again before signaling an end to the restrictive rate hike cycle. This means that market participants will listen for and look for the Fed's "tone" revealed in this week's FOMC statement, Chairman Powell's press conference, or comments from Fed members, to indicate when they will end rate hikes, as any indication of when they will begin rate cuts next year. It is highly likely that the Federal Reserve will not announce an end to rate hikes this week, so what will ignite a gold price rally or cause the gold price to continue to fall will be the hawkish or dovish tone of its statement, not the content of its statement. The gold price began to fall after hitting $1980 on September 1. From the daily chart, the gold price is fluctuating; the moving averages are intertwined, the MACD is intertwined, the KDJ is in a golden cross, the gold price has recovered the 200-day moving average, and the short-term trend is slightly bullish. It is currently testing the resistance near the 55-day moving average of 1930.60. If it breaks through this resistance, it is expected to further test the resistance near the 100-day moving average of 1946.13, and then the further resistance is near the high of September 1 at 1952.79. If it breaks through further, it will increase the bullish signal in the medium term. However, the resistance of the 55-day moving average is relatively strong. If it continues to be resisted, it is necessary to guard against the possibility of a bearish counterattack. The support of the 200-day moving average is currently around 1922.40, and the support of the 5-day moving average is around 1916.50. If this support is broken, it will increase the downside risk in the future; strong support refers to the 1900 mark, which is also the support of the recent three-week low reached last week. If this support is broken, it will increase the bearish signal in the medium term.
Time:
2023-09-19 07:55
On September 18, during the European trading session, spot gold continued to fluctuate narrowly around the $1930 per ounce mark. Last week's CPI data released by the Federal Reserve showed early signs of a resurgence in inflation, coupled with the strike by American auto workers, raising market concerns about a renewed surge in inflation. The probability of the Federal Reserve not raising interest rates at this week's upcoming interest rate decision is 79%, but there is still debate in the market about whether rates will be raised again.
On Monday (September 18), spot gold opened at $1923.51 per ounce. As of press time, spot gold is currently at $1926.35 per ounce, up 0.13%.
Oleg Melentyev, credit strategist at Bank of America, said that inflation in the United States is showing early signs of a resurgence, and if inflation accelerates from here, the default rate of US high-yield debt issuers could surge.
Even without considering rising interest costs, persistent price increases put pressure on corporate profits. Melentyev wrote in a report on Friday: "A 3% inflation rate is manageable for most junk-rated companies, but 4% would put pressure on them, and 5% could trigger a full-blown default wave."
Melentyev believes this wave could push the cumulative default rate for high-yield debt to 15%, significantly higher than the current level. Data from Fitch Ratings shows that about 2.5% of US high-yield debt defaulted in the past 12 months. Melentyev wrote that a sustained 4% inflation rate could push the cumulative default rate to 10%.
Data released by the US Bureau of Labor Statistics on Wednesday showed that overall inflation last month was 3.7% compared to August 2022, but the core consumer price index, which excludes food and energy costs, rose 0.3% month-over-month. This is the first month-over-month acceleration since February.
Melentyev said that last week's CPI report reinforced our view that the easy phase of fighting inflation is over. Strikes by auto industry workers could lead to higher wages, while rising oil prices and reaccelerating rental prices mean that keeping inflation below 3% "will be a struggle."
This week, the Federal Reserve will hold its sixth Federal Open Market Committee (FOMC) meeting of the year. The Fed holds eight FOMC meetings each year, where members discuss their economic forecasts and vote on any changes to monetary policy, such as interest rate hikes or cuts.
Economists and the financial industry expect the Federal Reserve to leave the benchmark federal funds rate unchanged for the second consecutive meeting. Since the March 2022 meeting, the Fed has raised interest rates at every consecutive meeting. At the March 2022 meeting, they began a round of aggressive and restrictive tightening, raising rates from 0-0.25% to the current fixed rate of 5.25%-5.5%. This assumption can also be seen in the CME Group's Fed Watch tool, which currently predicts a 97% probability that the Fed will not raise rates this week.
The Fed's major monetary policy changes are data-driven, and the data the Fed is looking for is confirmation that inflation is moving toward its 2% target. There is some debate about whether the Fed will raise rates again before signaling an end to the restrictive rate-hiking cycle.
This means that market participants will listen for and look for the Fed's "tone" revealed in this week's FOMC statement, Chairman Powell's press conference, or comments from Fed members, to indicate when they will end rate hikes, as any indication of when they might begin rate cuts next year.
It is highly likely that the Fed will not announce an end to rate hikes this week, so what will ignite a gold price rally or cause the gold price to continue to fall will be the hawkish or dovish tone of its statement, not the content of its statement. The gold price began to fall after hitting $1980 on September 1.
From the daily chart, the gold price is fluctuating; the moving averages are intertwined, the MACD is intertwined, the KDJ is in a golden cross, the gold price has recovered the 200-day moving average, and the short-term trend is slightly bullish. It is currently testing the resistance near the 55-day moving average of 1930.60. If it breaks through this resistance, it is expected to further test the resistance near the 100-day moving average of 1946.13, and then the further resistance is near the high of 1952.79 on September 1. If it breaks through further, it will increase the bullish signal in the medium term.
However, the resistance of the 55-day moving average is relatively strong. If it continues to be resisted, we need to be wary of the possibility of a bearish counterattack. The support of the 200-day moving average is currently around 1922.40, and the support of the 5-day moving average is around 1916.50. If this support is broken, it will increase the downside risk in the future; strong support refers to the 1900 mark, which is also the support of the recent three-week low reached last week. If this support is broken, it will increase the bearish signal in the medium term.
Related News
Gold prices continue to fluctuate.
Gold prices have shown a volatile pattern in the short term, affected by the weakening of the US dollar and changes in sentiment due to easing geopolitical tensions.
Gold prices rise again! Multiple risks fuel safe-haven demand.
From the perspective of the international market, the tense situation in the Middle East, the escalation of the Russia-Ukraine conflict, and the continued high uncertainty surrounding the US Trump administration's tariff policies have driven up gold prices due to increased risk aversion in the market. Furthermore, a significant recent change in the gold market is that gold has become the second-largest reserve asset for central banks globally. How should the future trend of gold prices be viewed? Several analysts have indicated that in the short term, gold prices may fluctuate due to factors such as tariff easing and sudden changes in the geopolitical situation; in the medium to long term, gold prices are still in an upward channel.
As the Russia-Ukraine conflict enters its third year, global attention is once again focused on this geopolitical crisis. According to Dow Jones Newswires, US President Donald Trump made startling remarks at the White House on Thursday (June 5), stating that neither Russia nor Ukraine is prepared for peace, and that both sides may "continue fighting" until one side is willing to compromise. This statement not only signals the failure of his attempts to broker peace, but also introduces new uncertainty to the global geopolitical and economic markets.
Recently, good news came from the China Machinery Metallurgy and Building Materials Workers' Technical Association. In the 2025 National Machinery Metallurgy and Building Materials Industry Workers' Technological Innovation Achievement Award, Shandong Guoda Gold Co., Ltd.'s "Purification of Crude Arsenic Flue Dust to Produce Arsenic Trioxide Industrial Application" and "Key Technology Application for High-Value Utilization of Complex Copper-Gold Ore Resources" projects won the first prize and the second prize respectively. This honor is a high recognition of the workers' technological innovation ability and the effectiveness of achievement transformation, and also fully demonstrates the company's outstanding strength in the industry.
Gold prices return to $3300! Wall Street banks show significant divergence in long-term outlook
In fact, as gold prices fluctuate, Wall Street's major banks have recently shown a clear divergence in their views on gold prices. Unlike Goldman Sachs and Deutsche Bank, which are optimistic about gold's performance, Citigroup believes that the long-term outlook for gold prices is not optimistic.
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.