On Wednesday (November 1st) during the Asian session, gold prices were trading near $1984 per ounce. Due to weak US data stimulating US dollar demand, gold prices rebounded after a slight increase on Tuesday, but are still expected to achieve their best monthly performance since November. This month, the yield of benchmark 10-year US treasury bond bonds broke the key level of 5% for the first time since 2007. Market participants attribute this increase to various factors, including concerns that the Federal Reserve will maintain higher interest rates for a longer period of time. The Federal Reserve is scheduled to release its next interest rate decision on Wednesday. The pricing of federal fund futures indicates that the probability of the central bank maintaining interest rates at current levels is approximately 99%. From a historical perspective, November has been a strong month for the market, and traders hope that seasonal positive factors will support the year-end rebound. However, they expect bond yields to peak before the stock market can see some relief. Analysts have stated that given the Middle East war and the continued demand for safe haven, investors still hold a positive attitude towards gold. The current strengthening of the job market may have a positive impact on yields and a negative impact on gold, while a weakening of the job market may increase the likelihood that the Federal Reserve is less hawkish or dove like, and then the pendulum will swing in the other direction.
Market News Analysis
On Tuesday, the overall market sentiment remained severely hit, as investors prepared for tomorrow's Fed rate hike, and the US dollar rose on the same day. The market expects the Federal Reserve to keep interest rates unchanged at its upcoming meeting, but stable US economic data and still strong inflation data increase the possibility of the Federal Reserve raising interest rates for the last time in 2023 at its December meeting.
Recently, central bank purchases of gold may be an unexpected support for gold prices; According to a report by the World Gold Council (WGC), central banks were the main driving force for gold demand in the third quarter. In the three months ended September, central banks around the world have stockpiled an additional 337 tons of physical gold, compared to 175 tons in the previous quarter. The central bank's total gold purchases in 2023 currently exceed 800 tons and may reach a historic high in 2023. The central bank's gold demand is the key factor to balance the gold price, and the gold price has recently become increasingly disconnected from the yield of US treasury bond bonds.
So far, the prospects of the Israeli-Palestinian conflict remain unpredictable, but as investors adapt to the Middle East conflict, gold may lose its safe haven appeal.
ActivTrades senior analyst Ricardo Evangelista pointed out that gold is still in a tug of war with the market, supported by political uncertainty and suppressed by the hawkish monetary policy stance of the Federal Reserve. In a report on Tuesday, he said, "The Gaza conflict has become the focus of attention, and as Israel's ground invasion appears to be becoming a reality, financial markets continue to digest the risk of escalation, thereby driving demand for safe haven gold "At the same time, the dollar is still strongly supported relative to other major currencies, and the index measuring its performance is close to the two-year high reached earlier this month. The Federal Reserve will hold a meeting this week, and there is still some uncertainty about whether Jerome Powell and his peers will raise interest rates again; this uncertainty has supported the dollar, and treasury bond bond yields remain high, limiting the gold brought by hedging transactions There is room for expansion
The market expects the Federal Reserve to maintain interest rates unchanged after Wednesday's monetary policy meeting; However, an increasing number of people expect the central bank to maintain restrictive interest rates in the first half of 2024.
Fixed income analysts at Dao Ming Securities said, "The Federal Reserve may maintain an overall hawkish policy tilt, consistent with the September matrix. However, the committee will reiterate that its goal in formulating the next policy steps is to 'act cautiously'
Commodity analysts at Commerzbank in Germany say that any suggestion by Federal Reserve Chairman Jerome Powell that interest rate hikes are still being discussed at the December meeting could bring greater pressure to gold prices in the short term. They added that the market will also monitor Friday's non farm employment data to look for signs of market weakness.
If this situation is not achieved again, the possibility of the Federal Reserve raising interest rates in December may be even greater. Indeed, the recent impact of interest rate expectations on gold prices is relatively small, but this does not necessarily mean that this situation will continue to apply in the coming weeks, "analysts said. Therefore, we caution against assuming that the gold price increase we have seen in recent weeks will continue, as this is due to special circumstances
Economists at Commerzbank in Germany analyzed the prospects of gold, If the favorable winds brought by speculative investors' purchases weaken, gold will lose momentum. If the driving force of speculative investors' purchases weakens, the upward momentum of gold prices may be lost. In addition, the Federal Reserve may eventually have to raise key interest rates again, which is contrary to current market expectations. The US economy grew at an annual rate of nearly 5% in the third quarter, which is the strongest growth rate in seven quarters At the press conference, Federal Reserve Chairman Powell may open the door for another rate hike in December. More importantly, it remains to be seen whether Friday's data indicates an expected cooling in the US labor market. If this situation is not achieved again, the possibility of the Federal Reserve raising interest rates in December may be even greater. Indeed, the recent impact of interest rate expectations on gold prices has been relatively small, but this does not necessarily mean that this situation will continue to apply in the coming weeks. We warn against assuming that the gold price increase we have seen in recent weeks will continue, as this is due to special circumstances
The focus of this week is the central bank meetings of the Federal Reserve, Bank of England, and Bank of Japan. The Federal Open Market Committee meeting of the Federal Reserve began on Tuesday morning and ended on Wednesday afternoon. Federal Reserve Chairman Powell issued a statement and held a press conference. Most markets expect the Federal Open Market Committee to suspend the rate hike cycle. The US employment situation report for October will be released later this week.
Analysis of gold technology: From a daily level perspective, with the opening of the Bollinger band upward, prices are still operating above the 5-day moving average. Yesterday's small negative daily line was a correction for previous increases. In the short term, continue to pay attention to the support of the 5-day moving average and the 10 day moving average. As long as prices operate above the 5-day moving average, the strong unilateral long trend remains unchanged; After 5 days of failure, the first touch of 10 days will also play a crucial role in stabilizing and serving as a turning point defense for the strong market to push upward; Therefore, in terms of operation, we will continue to maintain a pullback and bullish mentality. The 4-hour medium track is also the support for the current strong rise of gold, with the daily Macd gold cross and the red kinetic energy column gradually shrinking, the RSI overbought area turning downward, the 4-hour MACD double line leveling, and the stock approaching a dead cross. The indicators indicate that gold is currently in a long trend, but the short-term trend tends to be volatile and consolidation, with gold reaching a double peak in one hour. Yesterday, the US market hit a bottom in 1994, and quickly rose and fell again, Long bullish performance is weak, so short-term gold operations can be short followed by long operations.
The upper short-term focus is on the first line resistance from 1995 to 1993, while the lower short-term focus is on the first line support from 1972 to 1970,
On Wednesday (November 1st), crude oil prices were trading near $81.38 per barrel in the Asian market. Oil prices fell more than 3% on Monday, as concerns about the Israeli-Palestinian conflict disrupting supply in the region eased and investors became more cautious ahead of this week's Federal Reserve meeting. Last Friday, crude oil prices rose by 3%, sparking concerns that conflicts may escalate in this region, which accounts for one-third of global oil production. However, analysts say this concern is fading on Monday. Some analysts say that the war premium has withdrawn from the market. The weekend war seems to intensify, but the supply seems to have not been interrupted. Various forms of market users tend to hold at least a certain amount of oil bulls on weekends, and this fear hedging is usually lifted when the fear of conflict spreading is not confirmed. It is difficult to maintain the war premium risk of crude oil solely due to its proximity without any interference in the transportation of oil in the waters surrounding the theater of war. Despite the escalation of the war between Hamas and Israel, ground incursions are widely expected. The weekend's competition indicates that it will not further expand to broader regional wars, which has led to a decline in oil prices. The key economic data for this week will be Friday's October non farm employment report. In September, 336000 new jobs were added, and economists expect a moderate increase of 182000 jobs, which is still in line with the strong labor market. The unemployment rate is expected to remain at 3.8%, while wage growth is expected to slow to 4% year-on-year, which will mark a post pandemic low and may help strengthen the Federal Reserve's view that price pressures are easing and there is no need for further interest rate hikes, thereby easing the pressure on economic activities in the world's oil consuming countries.
Market News Analysis
After last week's sharp drop, oil prices have started to fall further this week, and traders are no longer limited to the Middle East region, but are worried about what action the Federal Reserve may take on Wednesday's interest rate decision.
Analysts from Dutch International Group said: "It is difficult to see significant and sustained price increases without supply disruptions in the region." However, so far, the conflict has not affected oil supply.
Nevertheless, as reported by Market Watch, the situation in the Middle East remains unstable. Bloomberg reported on Monday evening, citing sources familiar with the situation, that the Saudi Arabian military is on high alert after a deadly conflict with the Yemeni Hussein armed forces supported by Iran. The Hussein armed forces attempted to launch missiles over Saudi Arabia towards Israel.
Macquarie's strategists wrote in a recent report that they are still bearish on oil but "recognize the upward risks associated with the Middle East conflict".
Warren Patterson and Ewa Manhey, commodity analysts at ING, stated that the biggest concern is Iran's oil flow, and if the United States enforces stricter sanctions on its exports, the Iranian oil market may have up to 1 million barrels of crude oil phased out every day.
Interestingly, since the Hamas attack on Israel, crude oil prices have recouped most of their gains, indicating either a significant decrease in geopolitical risk premiums, increased global economic concerns, or a combination of both, "said online trading platform OANDA.
From March 2022 to July this year, the Federal Reserve raised interest rates 11 times, raising the US benchmark lending rate from 0.25% to 5.5%. It is expected that the Federal Reserve will maintain interest rates unchanged. But the central bank may still hold another meeting in December, at which time it may raise interest rates again. Tuesday's data showed that due to strong wage growth, labor costs in the United States steadily increased in the third quarter, while housing inflation accelerated in August, which is the latest sign that the Federal Reserve may maintain high interest rates for a period of time. In addition to the wage inflation report, when the October non farm employment report is released on Friday, the Federal Reserve will also receive more influential data on US employment and wages.
The manufacturing activity of major Asian countries unexpectedly shrank in October, leading to a significant slowdown in non manufacturing growth. This data indicates that despite a series of stimulus measures taken by Asian powers, commercial activity is still struggling to recover, and with the economic situation steadily deteriorating, more questions have been raised about how much oil consumption by Asian powers will increase this year.
A recent report by the World Bank suggests that the Palestinian-Israeli conflict may lead to a disruption of oil supply in the Middle East, which could lead to a surge in energy prices and exacerbate global food insecurity. Chief Economist Indermit Gill said that the Russia Ukraine crisis had had an unprecedented impact on commodity markets since the 1970s. However, due to the resilience of the global economy, the impact of these events has so far been relatively small.
Despite these protective measures, any interruption may result in an initial price increase of 3% to 75%. The World Bank expects oil prices to be $90 per barrel in the fourth quarter of 2023, with an overall oil price of $84 per barrel in 2023, lower than the $100 per barrel in 2022.
Deputy Chief Economist Ayhan Kose emphasized that sustained high oil prices will inevitably lead to an increase in food prices. The number of people with severe food insecurity worldwide has increased from 624 million in 2017 to approximately 900 million in 2022. The rise in oil prices may increase the production and transportation costs of food and fertilizers, further pushing up food prices and exacerbating global food insecurity.
OPEC+production reduction is expected to balance supply increase by the end of the year. The International Energy Agency (IEA) plays a crucial role in developing response measures to address such energy shocks, and given these potential disruptions, this responsibility has become increasingly important.
Oil trading group API stated on Tuesday that US crude oil inventories may have increased by up to 1.3 million barrels last week, leading to another increase in storage centers related to the delivery of oil contracts traded on the New York Mercantile Exchange.
The weekly inventory report of the American Petroleum Institute (API) shows that the inventory of gasoline, diesel, and distillate oil, which are the raw materials for heating fuels, has decreased in the United States.
Usually at this time of year, the demand for car fuel in the United States weakens because as the weather shifts from autumn to winter, the number of times Americans drive decreases. However, due to seasonal maintenance being carried out in the refining industry, it is common for fuel inventory to decline more than usual, resulting in limited replenishment.
API data shows that as of the week ending October 27th, the US crude oil inventory balance decreased by 1.347 million barrels. In stark contrast, in the week before October 10th, production decreased by 2.668 million barrels due to a sharp decline in exports.
API pointed out that inventory at the Cushing Storage Center in Oklahoma has increased for the second consecutive week, serving as the delivery point for West Texas Intermediate crude oil futures traded on the New York Mercantile Exchange. Cushing's storage levels have significantly decreased this year, sparking concerns that they may reach such critical lows, making storage center operations more complex. However, last week the storage center saw a net increase of 375000 barrels, an increase of 513000 barrels compared to the previous week.
In terms of fuel, the Petroleum Trade Organization reported a decrease of 357000 barrels in gasoline inventory and 2.313 million barrels in distillate oil inventory. Last week, there was a shortage of 4.169 million barrels of gasoline, while distillate oil decreased by 2.313 million barrels.
Goldman Sachs reiterated that oil prices will reach $100 per barrel, but it is unlikely to continue to exceed $105 per barrel. Goldman Sachs pointed out that with a slight decline in the stock market, Brent crude oil is expected to rise to $100 per barrel by June next year. However, Brent crude oil prices are unlikely to continue to exceed $105 per barrel in 2024, which is the upper limit of the OPEC "sweet spot" range of $80-105 per barrel. Although the impact of productivity and oil demand trends is also crucial, the market may become very tense in the far future. At present, the oil market is slightly more tense than usual and is further tightening at a moderate pace, but there is considerable spare capacity to cope with short-term tightening shocks.
Technical analysis of crude oil; Yesterday, crude oil fell from the negative line and closed lower, reaching a low point before closing at a low point. The daily K-line structure is accompanied by a cyclic oscillation of one positive and one negative, currently approaching an infinite low of 81.50. Short term competition for the position of long air defense, but hovering around the low point for a long time. The short-term trend is relatively weak. But considering the overcast timeline
