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On September 18th, CICC Research Report stated that, looking ahead, due to weak employment data, we expect the Federal Reserve to cut interest rates by another 25 basis points in October. However, rising inflation will raise the bar for rate cuts, limiting the scope for monetary easing. The current crux of the US economy is not insufficient demand, but rising costs. Excessive monetary easing will not only fail to address the employment problem but could also exacerbate inflation, plunging the economy into a quasi-stagflationary situation.Gold prices rose in early Asian trading on September 18th, as the Federal Reserve may cut interest rates further, which will enhance the appeal of the non-interest-bearing precious metal. ANZ analysts said in a research note that investors cheered the start of a rate-cutting cycle. However, the analysts added that Fed Chairman Powells remarks were not as dovish as the market expected, which curbed the rise in gold prices.Japans core machinery orders month-on-month rate in July was -4.6%, in line with expectations of -1.70% and the previous value of 3.00%.Japans core machinery orders in July were 4.9% year-on-year, in line with expectations of 5.4% and the previous value of 7.60%.On September 18, Federal Reserve Chairman Powell, in response to questions about the central banks statutory requirement to achieve "moderate long-term interest rates" at a press conference following the interest rate decision on Wednesday, explained why the three missions given to the Federal Reserve by Congress can be reduced to two major tasks in practice. Central bank officials have long positioned their mission as a dual task, with monetary policy focusing on keeping inflation low and stable and ensuring a continued strong job market, with little emphasis on the third task. Powell told reporters that the third task is real, but in the eyes of central bankers, it is a derivative of the two more well-known goals stipulated by law. He said: "We believe that moderate long-term interest rates are the result of achieving low and stable inflation and maximum employment." For some time, Federal Reserve officials did not believe that the third task required "independent action."

Gold Price Prediction: XAU/USD is eroding vital support with an eye on a major breakout

Alina Haynes

Oct 10, 2022 11:19

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The price of gold has been under pressure at the start of the week due to a strong US dollar in the open, which is edging to new highs against its counterparts, with a robust US labor market bolstering bets on higher interest rates as traders brace for data that is expected to show persistently high inflation. At the time of writing, the gold price has hit a daily low of $1,691.89 and a daily high of $1,699.91, with a loss.

 

Nonfarm payrolls increased by 263,000, exceeding the average projection of an increase of 250,000 positions. Education and health services, as well as leisure and hospitality, led to an increase of 244,000 jobs in the service industry. In September, the unemployment rate decreased to 3.5% from 3.7% in August, contrary to expectations that it would remain steady. The labor force participation rate decreased by 0.1% to reach 62.3%.

 

This goes against their efforts to restore demand-supply equilibrium in the labor market in the face of inflation, meaning that substantial rate hikes are a certain conclusion for the foreseeable future, and this is a headwind for gold prices relative to a flattening yield curve. This will be a crucial week for the upcoming days, since there are numerous US calendar events, such as the minutes of the previous Fed meeting, US inflation data, and Retail Sales.

 

Futures pricing indicates that nearly 90% of traders anticipate a 75 basis point rate hike in the United States next month and over 150 basis points of tightening by May. Consequently, US stocks fell on Friday. The Dow Jones Industrial Average dropped more than 600 points, or 2.11 percent, while the S&P 500 and Nasdaq Composite IXIC shed 2.8% and 3.8%, respectively, as investors bet that the Fed's war against inflation will continue apace. The MSCI world equity index, which measures stocks in 45 countries, declined by 2.45%.

 

In some ways, this is beneficial for gold, as investors will seek out the yellow metal as a safe haven. However, despite continuous geopolitical uncertainty, the bears continue to run on the belief that the Fed is unlikely to stop boosting rates preemptively due to persistently growing inflation.

 

TD Securities analysts claimed, "A lengthy period of restrictive rates means traders should reject gold's siren calls, as a sustained decline will likely prevail, as quantitative tightening continues to force real rates higher." In recent days, gold's upward momentum has waned as a result of a steady stream of hawkish Fed comments. With today's crucial employment report and next week's inflation data, there are numerous factors that might move the focus back to hawkish interest rate policy.

 

During this time, Chinese markets reopen following a weeklong holiday. The 20th National Congress of the Communist Party begins on Sunday and is expected to reinforce Xi Jinping's leadership. A persistently weak yuan environment is an additional supportive element for the US dollar as China's economy struggles under the weight of continued COVID outbreaks and capital controls.

 

Caixin's Services Purchasing Managers' Index (PMI) for September 2022 fell to 49.3 from 55.0 in August, indicating a return to contraction. China's official services PMI missed expectations at 50.6 (anticipated 52.0, prior 52.6), and China's Caixin / Markit Manufacturing PMI for September was dismal at 48.1. (expected 49.5, prior 49.5). Considering the multitude of geopolitical concerns involved, this should all go to the U.S. dollar.

 

North Korea is rearing its ugly head once more with the news that it conducted nuclear operating training over the weekend, as reported by Reuters, which cited North Korea's KCNA news agency on Monday. Authorities in neighboring nations said that the nation fired two ballistic missiles early Sunday morning, the seventh such launch by Pyongyang in recent days, adding to broad worry in Washington and among its allies in Tokyo and Seoul.

 

On the flip side, analysts at TD Securities stated that "USD upside will be more difficult to achieve at this time" because the MOF and BOJ appear bent on stifling USDJPY volatility. "This has been successful thus far. Currently, they have approximately $1tn in reserves, thus they have ammunition for this operation. We believe a move over 145 poses the danger of more yen intervention, which might cause a temporary USD drag on the complex. 140/145 seems reasonable for USDJPY at the moment. ''

 

The US inflation report will be a major event next week. Analysts at TD Securities predicted that the US Consumer Price Index remained robust in September, with the series showing another substantial 0.5% MoM increase. "Shelter inflation likely remained elevated, but we anticipate a dramatic decline in the price of old automobiles. Importantly, gas prices likely provided additional respite for the headline figure, falling approximately 5% month-over-month. Our MoM predictions imply 8.2%/6.6% YoY price growth for total/core goods.

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