• News
• 2024-08-07

Gold Price Plunges to 2-Week Low Amid Two Bears; Fed Minutes in Focus

On Wednesday (October 9th) in the Asian morning session, spot gold fluctuated within a narrow range, currently trading at $2622.88 per ounce. Gold prices fell by more than 1% at one point on Tuesday, hitting a low of $2604.68 per ounce, the lowest since September 20th, and closed at $2621.76 per ounce. The recent U.S. employment data dampened expectations for a more significant rate cut, and with Hezbollah's support for ceasefire efforts, the market's concerns about a possible full-scale war in the Middle East have cooled, also weakening safe-haven buying of gold.

However, the market is awaiting the minutes of the Federal Reserve's most recent policy meeting for new signals. Although technical indicators suggest that gold prices still have a risk of further correction in the short term, the prospect of rate cuts by most central banks around the world continues to attract buying support at lower levels.

David Meger, the head of metals trading at HighRidge Futures, said: "There has been a correction or pullback in the past few days due to changes in the interest rate outlook." He also mentioned that the recent surge in Treasury yields further undermined expectations for a more substantial rate cut.

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U.S. Treasury yields fluctuated on Tuesday, with short-term bond yields falling and long-term bond yields rising, influenced by factors such as Federal Reserve monetary policy, investor position adjustments, and economic prospects.

Investors continue to adjust their expectations for further rate cuts by the Federal Reserve and await the release of the September meeting minutes to gain a clearer understanding of what prompted the Fed to cut rates significantly despite the economy's resilience. The minutes are scheduled to be released on Wednesday.

U.S. interest rate futures market pricing indicates an 88% possibility of the Federal Reserve cutting rates by 25 basis points at its next meeting, with a 12% possibility of pausing rate cuts. Prior to the September employment report released last Friday, which changed market sentiment, the interest rate futures market priced in a 50% chance of the Federal Reserve making a substantial 50 basis point rate cut, with a 25 basis point cut also at 50%.

Investors also stated that for most of this year, the market anticipated many rate cuts over the next two years, and the recent reduction in the expected number of rate cuts is considered overdue.

Kevin Flanagan, head of fixed income strategy at WisdomTree in New York, said, "The recently released economic data, especially last Friday's employment report, did not justify the summer's rise in Treasury bonds."

The 10-year Treasury yield edged higher on Tuesday, reporting 4.028%, marking a fifth consecutive trading day of gains and setting a 10-week high of 4.057%.

The U.S. 30-year Treasury yield also reached a high not seen since late July on Tuesday at 4.342%, closing up by 1.5 basis points at 4.319%.Data released on Tuesday showed that the U.S. trade deficit narrowed by 10.8% to $70.4 billion in August, the smallest in five months, indicating that trade's impact on third-quarter economic growth was essentially neutral. Exports rose by 2.0%, reaching a record $271.8 billion. The smaller-than-expected trade deficit, coupled with labor market and consumer spending data, suggests that the U.S. economy remained robust in the third quarter. This strengthens the view that the Federal Reserve does not need to cut interest rates by another 50 basis points.

Atlanta Fed President Bostic stated that last week's employment data confirmed that the U.S. labor market may be slowing down, but it remains strong, with the 4.1% unemployment rate close to full employment, and employers adding jobs at a pace that exceeds the rate needed to keep up with population growth. He said that monthly job gains are "quite strong."

Bostic said that if monthly job gains fall below 100,000, he would question whether the Federal Reserve should consider cutting interest rates faster than originally planned.

However, Boston Fed President Collins indicated that with inflation trends becoming more sluggish, the Federal Reserve is likely to have more rate cuts. Looking ahead, "maintaining the current healthy labor market conditions will be very important."

Collins believes that there is still a way to go to push inflation back to the Federal Reserve's target. She said that inflation is likely to remain near current levels in the coming months, and by the end of 2025, price pressures will slow to 2%.

The U.S. dollar remained firm on Tuesday, hovering below the seven-week high it touched last week, as investors assessed the prospects for further rate cuts in the U.S. Concerns about conflicts in the Middle East and the economic difficulties of a major Asian country also provided support for the dollar. The U.S. dollar index closed at 102.45 on Tuesday, almost unchanged. On Wednesday in the Asian market, the U.S. dollar index fluctuated narrowly around 102.45, not far from the near one-month high of 102.69 set last week, which still exerts some pressure on gold prices.

In terms of geopolitical situation, the Israeli Prime Minister said that two successors of Hezbollah leader Nasrallah have been killed. Hezbollah publicly supports a ceasefire in Lebanon without conditioning it on stopping the Gaza conflict. Market concerns about the geopolitical situation have cooled somewhat.

Israeli Prime Minister Netanyahu said on Tuesday that Israeli airstrikes had killed two successors of Hezbollah leader Nasrallah, and Israel expanded its ground offensive against the organization, deploying a fourth army division to southern Lebanon. Netanyahu did not disclose the names of the two "successors." Israeli Defense Minister Gallant said that Safieddin, who is expected to succeed Nasrallah, may have been "eliminated."

In addition, Hezbollah's second-in-command, Naim Qassem, said in a televised speech from a secret location that he supports efforts to reach a ceasefire. Netanyahu's office refused to comment on Qassem's remarks. U.S. State Department spokesman Miller said that Hezbollah "changed its attitude and wanted a ceasefire" because the organization was "at a disadvantage on the battlefield and suffered heavy losses."

It is worth mentioning that a delegation from the Palestinian Islamic Resistance Movement (Hamas) has arrived in Cairo to hold talks with representatives of the Palestinian National Liberation Movement (Fatah) on reconciliation and the Gaza issue. The Hamas delegation, led by senior official Khalil al-Hayya, will hold talks under Egyptian auspices to promote reconciliation between the two major Palestinian factions, Hamas and Fatah. The main topics of the talks include the current situation in the Gaza Strip, the future of the Rafah crossing between the Gaza Strip and Egypt, etc. Israel currently controls the Gaza side of the Rafah crossing.The market's focus is on the latest policy meeting minutes to be released by the Federal Reserve on Wednesday, followed by the U.S. Consumer Price Index (CPI) data on Thursday and the Producer Price Index (PPI) data on Friday.

The World Gold Council (WGC) stated on Tuesday that global physical gold-backed exchange-traded funds (ETFs) attracted capital inflows for the fifth consecutive month in September, as funds listed in North America increased their holdings of gold. This is still expected to provide support for gold prices in the medium to long term.

Today's trading session requires attention to the Reserve Bank of New Zealand's interest rate decision, with the market widely anticipating a 50 basis point rate cut. A rate cut would reduce the opportunity cost of holding gold. In addition, it is necessary to continue monitoring speeches by Federal Reserve officials and news related to geopolitical situations.