Spot gold regained 1800, but the bulls ran away! FED will eventually pierce the "lie"

On Thursday (October 14), spot gold refreshed its high since September 15 to $1800.55 per ounce, as the U.S. dollar pointed out that it continued its overnight decline and hit a one-and-a-half-week low of 93.754. With the Fed's minutes almost confirming that it will start to cut debt purchases during the year, the dollar bulls have profit-taking. However, the market generally expects that the Fed will tighten monetary policy faster than expected, and gold bulls must accelerate their positions.


At 19:59 GMT+8, spot gold rose 0.17% to US$1,795.79 per ounce; the main COMEX gold contract rose 0.13% to US$1796.9 per ounce; the US dollar index fell 0.15% to 93.879.


The US dollar index hit a new high since September 28 to 94.563 at the beginning of the week, but fell more than 0.5% on Wednesday. Although the US dollar index continued to fall after the release of the September meeting of the Federal Open Market Committee (FOMC), the meeting minutes confirmed that stimulus measures will almost certainly begin to shrink this year and show that more and more policymakers are worried that high inflation may continue.

The expectation that the Fed will tighten monetary policy faster than previously expected pushed the U.S. dollar to surge in September. As the economy this year will grow at the fastest rate in decades, the inflation rate is much higher than the Fed’s comfort zone, and the labor market has recovered from the damage caused by the new crown epidemic. Fed Chairman Powell and his colleagues hope to start cutting the Fed to stimulate the economy. Debt purchase plan for recovery.

Will the Fed become more hawkish?

The latest report from the US Department of Labor shows that consumer prices in September rose by 5.4% year-on-year. With the recent surge in energy prices, prices may rise further in the next few months, which may force the Fed to act faster to normalize policies.

The latest meeting minutes show that the Fed’s internal concerns about inflation have intensified. “Most” policymakers now believe that there are upside risks. “Some” policymakers are worried that high inflation will affect inflation expectations or cause broader price increases.

Fed Governor Bowman said on Wednesday (October 13) that she was “very satisfied” with the withdrawal of part of the Fed’s support for the economy during the crisis period as early as next month, on the grounds that she was worried about inflation and asset bubbles. “I’ve noticed now, The remaining benefits of buying assets to the economy may be offset by potential costs."

Goldman Sachs Chief Operating Officer John Waldron said in an online dialogue held by the International Finance Association (IIF) on Wednesday that he believes that inflation is the number one risk that may damage the global economy. “Inflation is currently the single biggest risk. The short-term risks posed by the recovery can still be seen from the possible long-term risks to emerging markets."

As the action to cut debt purchases is about to begin, people's attention now turns to the timing of future interest rate hikes. The currency market currently predicts that the probability of the Fed raising interest rates by 25 basis points for the first time before July 2022 is about 50%.


Therefore, the market trend overnight so far is in line with the typical operation of'buy expectations, sell facts'. The Fed confirmed the expectations of many investors that the US dollar long positions have been profitable because the Fed’s tightening policy has been reflected in prices to some extent. However, the U.S. dollar is expected to resume its long-term upward trend soon, and gold may meet resistance and fall back near the 1,800 U.S. dollar mark.

Biden asks to solve the supply bottleneck

U.S. President Biden urged the private sector on Wednesday to help alleviate congestion in the supply chain that could disrupt the holiday season in the United States, and said that the White House plans to inspect the blocked system nationwide.

In his speech at the White House, the president said: "If federal support is needed, I will instruct all appropriate actions. If the civil sector does not stand up, we will call them out and ask them to take action." He said that the broader goal is to resolve Long-standing weaknesses in the US supply chain.

White House officials said that Americans may face price increases due to supply chain issues, and there may be vacancies in store shelves this Christmas shopping season. White House spokesperson Psaki told reporters that Biden cannot guarantee that there will be no shortages during the holiday shopping season.

The supply chain crisis is mainly due to the global new crown epidemic. The ups and downs of the epidemic make the global supply chain optimized for the timely circulation of goods into trouble. Sales of durable goods soared as labor shortages and transportation hubs slowed down.

Studying and judging the inflation situation depends not only on the inflation data itself, but also on the supply and demand of the labor market and wage levels. As the number of voluntary resignations hit a record high in August, there are at least 10.4 million job vacancies in the United States, and salary data will rise further. However, the increase in purchasing power that consumers get from high salaries will be weakened by high inflation, because companies will pass on the rising operating cost pressures to consumers.

Lower-than-expected Christmas sales will not harm the performance of US companies and will also pose a political risk to Biden. Less than a year after taking office, Biden continued to struggle with a series of other domestic issues. The two parties in the United States continue to wrestle around the debt ceiling. As long as a breach of contract no longer seems impossible, whether it is a temporary technical default or not, it may damage the credibility of the U.S. dollar, the world's largest reserve currency.

The Fed has promised to maintain the target overnight lending rate at the current near-zero level until the economy achieves full employment, and the inflation rate not only reaches the 2% target, but is expected to remain slightly above the target level for a period of time.

When the Fed set these parameters, the inflation rate had been below 2% for many years. At that time, policymakers believed that the biggest challenge was to increase rather than decrease the inflation rate. But now, the opposite problem may be emerging. Due to the economic restart, pent-up consumer demand drives spending, while companies that are dragged down by supply bottlenecks have difficulty keeping up with the growth in demand.

Therefore, market participants generally believe that the FOMC's assumption of a temporary surge in inflation is wrong. In their view, the Fed is under pressure to tighten monetary policy more radically, which will eventually pull funds out of the gold market on a large scale.

Spot gold is expected to rise to US$1810

On the hourly chart, the price of gold started an upward iii wave trend from US$1750 and broke the 76.4% target of US$1796. The market outlook is expected to further touch the 85.4% target of US$1801 and the 100% target of US$1810.