On Wednesday (November 29th), as the European market entered trading, the recently plummeting US dollar seemed to be taking a break. The US index rebounded close to the 103 mark, while international gold fell from above the high of $2050 and is currently below $2040. The market is paying attention to the speeches of Federal Reserve officials today, and is focusing on the revision of US GDP data.
The Great Reversal of Gold and US Dollar
The rise in gold prices on Wednesday was lackluster, having previously hit a nearly seven month high, driven by the decline in US dollar and bond yields, as investors increased their confidence in the possibility of a rate cut by the Federal Reserve in the first half of next year.
Spot gold rose and fell today, with the Asian market breaking through $2050 earlier, breaking a six-month high to the level of $2051.87. However, it has now turned lower and fallen below $2040.
The US dollar index has regained its upward momentum today, currently trading around 102.90, approaching the 103 level.
The US dollar hit its lowest level of 102.46 since mid August earlier and is set to record its worst monthly performance in a year, making gold less expensive for holders of other currencies.
Meanwhile, the yield of 10-year US treasury bond bonds fell to a two month low of 4.2802%.
"The factor driving up gold prices is that the market is increasingly expecting the Federal Reserve to shift from hawkish to dovish in the first half of next year - earlier than before," said Kelvin Wong, senior market analyst for OANDA Asia Pacific. "The key focus is on personal consumer spending data, and the market expects inflation pressure in the United States to slow down again."
Waller's words stimulate the market
Federal Reserve policy makers seem increasingly willing to keep interest rates unchanged by the end of this year and hold their ground until interest rate cuts are made. The lower interest rates lower the opportunity cost of holding interest free gold.
Federal Reserve Governor Christopher Waller hinted on Tuesday that interest rates may be lowered in the coming months.
Waller stated that there is increasing confidence that policies are in a good position. The labor market is cooling down, but it is still relatively tight. Inflation is still too high, and it is too early to say whether the slowdown in inflation will continue. We need to improve service sector inflation (excluding housing) to achieve an overall inflation rate of 2%.
Waller predicts that the US GDP in the fourth quarter may be 1% to 2%; The data from recent weeks has made the growth in the third quarter look like a one-time leap. If inflation continues to decline in the coming months, this would be a good economic reason to lower policy interest rates.
According to CME's FedWatch Tool, traders currently anticipate a probability of over 70% for a rate cut in May, compared to Tuesday's forecast of 50%.
On this trading day, more Federal Reserve officials will appear. At 3:00 PM Greenwich Mean Time (23:00 PM Hong Kong Time on Wednesday), Richmond Fed Chairman Thomas Baking will be interviewed by CNBC; At 18:45 Greenwich Mean Time (02:45 AM Hong Kong Time on Thursday), Governor of the Federal Reserve Bank of Cleveland, Loretta Mester, will give a speech.
Investors will pay attention to Thursday's release of US personal consumption expenditure (PCE) data, which is a favored inflation indicator by the Federal Reserve. The focus of the market is also on the revised US Q3 GDP data scheduled to be released on Wednesday.
Kim Wyckoff, senior analyst at Kitco Metals, said that the outlook for gold remains bullish in the near future, and the US dollar index is in a downward trend due to market expectations that the Federal Reserve will no longer raise interest rates and may even lower them before spring.
However, "if the (US) GDP data and inflation indicators are stronger than expected, it will weaken traders' enthusiasm for gold," Wyckoff added.
According to data from the US Commodity Futures Trading Commission (CFTC), the net long contracts held by hedge funds in gold increased by approximately 22200 units in the week ending November 21, reaching a four month high of nearly 114900 units.
Spot gold may expand its increase to the range of $2059 to $2069 per ounce.
