On Wednesday (October 9), spot gold plunged nearly $15. After the latest minutes of the Federal Reserve meeting were released, market expectations that the Federal Reserve would keep interest rates unchanged in November suddenly increased, which stimulated the strength of the US dollar and hit gold prices.
Spot gold closed down $14.13, or 0.54%, at $2,607.71 per ounce on Wednesday. The price of gold fell to a low of $2,605.16 per ounce during the session.
FXStreet analyst Christian Borjon Valencia pointed out that gold prices fell for the sixth consecutive day after the Federal Reserve released the minutes of its September meeting. The minutes of the Federal Open Market Committee (FOMC) showed that although all participants were in favor of a rate cut, some officials preferred a 25 basis point cut.
The minutes of the Federal Reserve's September monetary policy meeting revealed deeper divisions at the Federal Reserve. Although only one person, Federal Reserve Governor Bowman, voted against the decision in the end, the minutes showed that the differences among decision-makers were more serious than the almost unanimous decision showed.
The Fed cut its benchmark interest rate by 50 basis points at its September meeting, but Fed Chairman Powell encountered some resistance in pushing the Fed to make a decision of 50 basis points in the cut, as more than one of his colleagues advocated only a 25 basis point cut.
The minutes of the September 17-18 meeting of the FOMC released on Wednesday said: "Some participants said that they would have preferred to reduce the target range by 25 basis points at this meeting, and several others said that they would have supported such a decision. Several participants pointed out that a 25 basis point reduction would be consistent with the gradual path of policy normalization, which would give policymakers time to assess the degree of policy restraint as economic conditions change."
The minutes also pointed out that officials agreed that the larger rate cuts adopted at the meeting should not be regarded as a signal of concern about the economic outlook, nor should they be regarded as a signal that the Fed is ready to cut rates quickly.
In discussing inflation developments, participants noted that inflation rates are still somewhat high, but almost all participants believed that the recent monthly data are consistent with the trend of inflation rates continuing to fall back to 2%. Some participants said that while food and energy prices played an important role in the decline in overall inflation, the slowdown in the pace of price increases has become more pronounced across a wide range of goods and services.
Nick Timiraos, the "Fed mouthpiece," said that at last month's meeting, Fed officials were divided on the extent of the rate cut, with the vast majority supporting a larger 50 basis point cut that was eventually approved, but others supporting a smaller 25 basis point cut.
Michael de Pass, global head of interest rate trading at Castle Securities, said that a strong U.S. economy and stubborn inflation will push the Fed to cut rates only once more for the rest of the year. He said: "I dare say that the rest of the year will end up with only a 25 basis point cut. The market suggests that there will still be a 50 basis point cut this year. We feel a little too high, both in terms of the underlying economic strength and the stickiness of inflation."
After the Fed minutes were released, CME's "Fed Watch" tool showed that the probability of the Fed cutting interest rates by 25 basis points in November fell to 75.9% from 85.2% a day ago. This means that some market participants see a 24.1% chance that the Fed will keep interest rates unchanged, up from 14.8% on Tuesday.
U.S. Treasury yields continued to rise, with the 10-year Treasury yield at 4.062%, up 5.5 basis points. This supported the dollar, with the dollar index up 0.42% at 102.90, its highest level since mid-August 2024.
Focus on U.S. CPI
Valencia said that now, traders' attention shifts to the U.S. Consumer Price Index (CPI) released on Thursday. The market estimates that inflation will continue to decline. However, if inflation is higher than expected, it will open the door for the Fed to pause its easing cycle.
The market expects the U.S. CPI year-on-year growth rate in September to fall from 2.5% to 2.3%. The CPI is expected to rise 0.1% month-on-month in September, lower than the previous 0.2%.
The year-on-year growth rate of the U.S. core CPI in September is expected to remain at 3.2%; the month-on-month growth rate of the core CPI in September is expected to fall from 0.3% to 0.2%.
Investors are also paying attention to the initial jobless claims data. Forecasts show 230,000 initial jobless claims for the week ended Oct. 5, up from 225,000 previously.
How to Trade Gold
As traders digested the minutes of the Federal Reserve's September meeting, gold prices extended losses below $2,630 an ounce, falling to a daily low of $2,605 an ounce, Valencia noted.
Although the relative strength index (RSI) readings were mixed and remained in bullish territory, the short-term momentum is bearish.
Valencia said gold has slumped to $2,620 an ounce. Once below $2,600 an ounce, gold will target the psychological level of $2,550 an ounce, followed by the 50-day simple moving average (SMA) of $2,537 an ounce. Once these levels are lost, the next target for gold is $2,500 an ounce.
On the other hand, Valencia added that if gold rebounds and reclaims $2,650 an ounce, it would pave the way for gold prices to challenge $2,670 an ounce and then the year-to-date high of $2,685 an ounce.
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2024-10-10
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