Gold trading reminder: The U.S. dollar pulls back sharply and the price of gold rises violently, which may challenge the thousand-eight mark in the day

On Thursday (October 14) Asian session, spot gold price held steady at around 1791. On Wednesday (October 13), the price of gold soared by 1.87%, as the yields of the U.S. dollar and U.S. Treasury fell, which boosted the safe-haven demand for gold. However, the minutes of the September meeting showed that policymakers hinted that they might start to reduce debt purchases in mid-November, which limited the rise of gold.

Pay attention to the US preliminary data and September PPI. PPI data is expected to rise further.

Fundamentals are bullish

[The U.S. dollar index fell sharply from its high]

The U.S. dollar fell from a one-year high on Wednesday as the yields on longer-term Treasury bonds fell, after US inflation data showed strong price increases last month, and the Fed’s September meeting minutes confirmed that “soon” will begin to reduce bond purchases.

(Daily chart of the US dollar index)

The US Consumer Price Index (CPI) rose 0.4% last month, while economists expected a 0.3% rise. CPI rose 5.4% year-on-year, higher than August's 5.3%. After excluding the volatile food and energy components, the core CPI climbed 0.2% last month, compared with 0.1% in August.

Edward Moya, senior market analyst at Oanda, said that the market is now seeing an important fulcrum, that is, inflation shows more persistent signs than temporary signs, which may force the Fed to raise interest rates much earlier than people expected.

He said that the market had previously expected to raise interest rates in December 2022, but is now focusing on September 2022.

[10-year U.S. Treasury yields continue to fall]

The U.S. 10-year U.S. Treasury yield fell for the second consecutive trading day, as the Consumer Price Index (CPI) further intensified the concern that inflation will continue to rise and force the Fed to take action.

The fall in long-term bond yields indicates that the market has not yet digested expectations that inflation will continue for a period of time, which flattened the yield curve.

Lisa Hornby, head of Schroders' U.S. cross-industry fixed income division, said: “The flattening of the curve shows that the market suggests that the Fed will be slightly more hawkish in response to rising inflation and normalize short-term interest rates.”

"In the long run, this will lead to a slowdown in economic growth and subsequent inflation data, so the result is an increase in short-term bond yields and a decline in long-term bond yields."

Federal funds rate futures show that after the release of the CPI data, the possibility of the Fed raising interest rates before September 2022 is 90% , fully digesting the expectation of interest rate hikes before October.

Fundamentals are bad

[The Fed discusses plans to reduce debt purchases, or starts action in mid-November]

The minutes of the Fed’s policy meeting on September 21-22 show that policymakers have hinted that they may begin to reduce their support to the economy during the crisis in mid-November, but how big is the threat of high inflation and how quickly interest rates need to be raised to deal with it. There are still disagreements on the issues to be addressed.

The minutes of the meeting released on Wednesday showed: "Although no decision was made to reduce the pace of asset purchases of US$120 billion per month, the participants generally believed that if the economic recovery is still on track, the gradual reduction of purchases will be completed around the middle of next year. The debt process may be appropriate."

The minutes of the meeting stated that policymakers discussed the monthly reduction of US$10 billion in U.S. debt and US$5 billion in mortgage-backed securities (MBS) purchases, but "several" members of the meeting tended to reduce the pace of debt purchases faster.

The minutes of the meeting show that if the Fed decides to reduce the pace of debt purchases at its policy meeting on November 2-3, it may start to act in the middle of the month or mid-December.

Unlike the minutes of the Fed meeting held in the summer, the latest meeting minutes describe inflation no longer, and policymakers "generally" expect inflationary pressures to be relieved as temporary factors "fading". On the contrary, the latest meeting minutes show that the Fed's internal fears about inflation have increased. "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.

[Food and rents promoted a steady rise in the US CPI in September]

The US Consumer Price Index (CPI) rose steadily in September, and the prices of food, rents and a range of other commodities all rose. This has put pressure on the Biden administration to immediately resolve the supply chain tensions that are hindering economic growth.

With the recent surge in energy prices, prices may rise further in the next few months. The report issued by the US Department of Labor on Wednesday may test Fed Chairman Powell's long-standing statement that high inflation is temporary. Powell and the White House blamed high inflation on supply chain bottlenecks.

Sung Won Sohn, professor of finance and economics at Loyola Marymount University, said: "Inflation is no longer'temporary' and supply chain bottlenecks are getting worse. Although the White House has recently intervened, the deadlock is unlikely to ease anytime soon."

The CPI surged 5.4% year-on-year in September and rose 5.3% in August. In September, the core CPI rose by 4.0% year-on-year, which was the same as the increase in August.

[S&P 500 and Nasdaq closed higher driven by growth stocks]

The US stock market S&P 500 and Nasdaq closed higher on Wednesday. Growth stocks such as Amazon and Microsoft led the gains. However, the decline in JPMorgan Chase and other banking stocks put pressure on the market.

(S&P 500 daily chart)

JPMorgan Chase’s share price fell 2.6%, despite the global mergers and acquisitions boom and the release of more loan loss reserves that pushed its third-quarter earnings to exceed expectations. The stock fell along with other bank stocks and was one of the biggest drags on the S&P 500 and the Dow. The Dow closed flat.

Some companies announced their results today, kicking off the third quarter earnings season of the S&P 500 index constituent stocks.

Jim Awad, senior managing director of Clearstead Advisors LLC, said that I hope that the company’s financial forecasts this season will be good enough for the stock market to rise further before the end of the year, but the market is currently waiting to be seen.

[October 13 gold ETF holdings: SPDR gold holdings decreased by 2.33 tons]

According to data from gold ETFs on October 14, the world's largest gold ETF-SPDR Gold Trust held 982.72 tons of gold as of October 13, a decrease of 2.33 tons from the previous trading day.

In general, the price of gold is quite strong in the short-term, and short-term gold prices should temporarily exit the market. The short-term gold price is expected to rise to challenge the psychological barrier of 1800.

(Spot gold daily chart)

GMT+8 8:37, spot gold was quoted at $1,79.75 per ounce.