February 13, 2023

On Monday (February 13), spot gold fell once more, falling to a new low of $1,852.61 an ounce since January 6 set in the previous trading day. But investors remained cautious ahead of key U.S. inflation data, which might affect the Fed’s path of rate hikes.

At 20:15 Beijing time, spot gold fell 0.23% to $1,860.76 an ounce; the main COMEX gold futures contract fell 0.15% to $1,871.7 an ounce; the U.S. dollar index rose 0.08% to 103.655.

The US CPI data for January will be released at 21:30 Beijing time on Tuesday (February 14). The market expects that the overall CPI and core CPI in the United States rose by 6.2% and 5.5% respectively in January, lower than the previous value of 6.5% and 5.7%. However, the annual revision of the CPI data by the US Department of Labor on Friday (February 10) showed that the monthly CPI rate in December was revised upwards.

Federal Reserve officials and some economists believe that U.S. wages will grow by regarding 5% in 2022, which is slower than the CPI but still too fast for core inflation to fall back to 2% sustainably. That compares with wages rising regarding 3.5% a year before the pandemic, when inflation was just under 2%.

Han Tan, chief market analyst at Exinity, said:“Gold appears reluctant to move wildly as key U.S. inflation data looms. The latest evidence that inflation remains stubbornly high should prompt gold to further erase its year-to-date gains.” But Tan added that if inflation eases sooner , the Federal Reserve will pause interest rate hikes, and it is more likely that gold prices will rise to $2,000.

Philadelphia Fed President Harker, the latest to speak, said on Friday (February 10) that he believes the Fed’s policy rate will rise to a position above 5% and remain there for some time. Market participants now expect the Fed’s target rate to peak at 5.193 percent in July, above the range of 4.75 percent to 5 percent forecast following the Fed’s December policy meeting, with little chance of a rate cut before the end of the year.

The Fed’s March meeting is expected to raise interest rates by 25 basis points, but the real concern for investors is the economic forecast that the Fed will release with the interest rate decision. Whether the Fed will continue to raise interest rates at the two meetings in May and June should be able to learn Get some clues.

powell’s goal

U.S. inflation is falling steadily as job growth surges and wage growth levels off, and the outlook for the economy is now more promising than it was nearly a year ago, as inflation slows without a painful recession — Achieving a so-called soft landing. But core inflation remains well above the Fed’s 2 percent target, and Fed officials have said they will do whatever it takes to keep borrowing costs high and prevent high inflation from becoming a long-term feature of the economy.

With a hot job market, and if core inflation is also on track to approach the Fed’s 2% target, why does the Fed feel the need to repeatedly warn that it’s ready to keep raising rates, even at the risk of a recession?

Data for January said the U.S. unemployment rate had reached 3.4%, the lowest level since 1969. For Biden, that’s something to brag regarding. But Powell is focused on low unemployment, worried that it might lead to a surge in wages that would drive up labor costs for employers, which in turn would drive up prices — a so-called wage-price spiral.

Tobin Marcus, senior strategist at Evercore ISI, said: “We’re in an economy where there are obviously some bright spots and dark spots … for very clear reasons, President Biden is more keen to highlight the bright spots, while Powell still needs to focus some attention on that. Focus on what helps get the job done.”

How markets will react to any specific policy adjustments made by the Fed is uncertain. What market participants are most concerned regarding is the peak rate of the Fed’s current rate hike cycle. If the economic data continues to support the Fed’s hawkish stance, it would not be surprising for gold to fall below $1,850, or even lower levels.

unbearable status quo

For the Fed, while inflation is paramount, the labor market is an important signal of where prices are headed. The demand for goods and services creates jobs and gives people money to spend. That said, a very strong job market suggests that consumers and businesses will be able to support higher prices.

Many experts say the Fed cannot reduce inflation by suppressing the job market. They pointed out that the current round of high inflation is caused by many special factors, including labor shortages caused by the epidemic, massive government spending, and the Russian-Ukrainian war…these cannot be cured by the Federal Reserve raising interest rates, although they may only be temporary factors.

One view is that the Fed needn’t worry too much because incomes are recovering following being hit by inflation and workers will stop pushing for big wage increases once price surges are more contained. But the Fed can’t stand core inflation running above its 2% target for too long, and with unemployment so low, it fears a shortage of workers will change that trend.

Powell and his fellow policymakers want to ensure inflation cools across the board, at least as soon as they want to see fewer job openings. Even if they stop raising rates, they will keep rates at punitive levels longer until they see what they call labor market slack — fewer job vacancies, slower wage growth and, more likely, a rise in unemployment. rise.

The prospect of further tightening by the Federal Reserve continued to support the dollar and acted as a headwind for non-yielding gold. Indeed, policymakers, including Fed Chairman Jerome Powell, emphasized last week that further rate hikes are needed to keep inflation in check. The Fed is still some way away from a policy shift.

While the broader environment of a slower pace of Fed rate hikes is very bullish for gold, it will be difficult for gold to rebound materially in the short term as the absence of a convincing investment narrative that confirms a return to 2% core inflation remains a hindrance With buyers entering the market.

Spot gold looks at $1840

On the hourly chart, the price of gold started a downward v-wave trend from US$1890, and the lower support looked at the 50% target at US$1840. The v wave is a sub-wave of the downward (a) wave that started at $1849. The (a) wave is a sub-wave of the adjustment ((ii)) wave that also started at $1849.