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Gold trading reminder: Double good news! Powell hinted at a rate cut in September, Iran ordered a counterattack, and the price of gold soared by nearly $40 to a nearly two-week high

2024-08-01

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In early Asian trading, spot gold fluctuated in a narrow range and is currently trading around $2,447.49 per ounce. Gold prices rose nearly $40 on Wednesday after Fed Chairman Powell hinted that if inflation meets expectations, interest rates could be cut as early as September, and the dollar and U.S. Treasury yields fell sharply. In addition, after the assassination of the Hamas leader in Iran, the Iranian leader ordered a direct attack on Israel, and geopolitical concerns further heated up, increasing the safe-haven demand for gold.

Spot gold closed at $2,447.12 per ounce on Wednesday, up about 1.5% on the day; it rose more than 5% in July, the largest monthly increase since March. U.S. gold futures closed up 0.9% and settled at $2,473.

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At a press conference held after the Fed decided to keep the benchmark interest rate unchanged, Powell said that policymakers are increasingly confident that inflation is steadily approaching the 2% target, igniting investors' hopes for a rate cut in September.

Tai Wong, an independent metals trader in New York, said: "Chairman Powell's remarks indicate that a rate cut in September is possible, and gold and silver rose in response. However, he did effectively close the door to a 50 basis point rate cut. Given that the Fed has just met expectations that have been strengthening recently, it remains to be seen whether gold can set a new record high."

The US dollar index fell 0.4% on Wednesday to close at 104.05, hitting an intraday low of 103.92, the lowest since July 18. The yield on the 10-year U.S. Treasury bond fell 2.61%, falling for five consecutive trading days, hitting an intraday low of 4.031%, the lowest since March 8, and closed at 1.033%.

Hamas leader Ismail Haniyeh was assassinated in Iran early Wednesday, making the Middle East, which is already caught in the Gaza War and the Lebanese conflict, more turbulent. The threat of escalating conflicts in the Middle East has strengthened support for safe-haven assets.

According to the New York Times, three Iranian officials revealed that Iran's Supreme Leader Khamenei issued an order at an emergency meeting, requiring Iran to directly attack Israel in retaliation for the assassination of Hamas leader Haniyeh in Tehran.

On this trading day, investors need to pay attention to the market's further interpretation of the Fed's interest rate decision, pay attention to further news on the geopolitical situation, and pay attention to the US ISM manufacturing PMI in July and the number of initial jobless claims in the US as of the week ending July 27.

In addition, the US July non-farm payrolls report will be released on Friday, and investors should also pay attention to changes in market expectations for the data. Relatively speaking, the positive impact of the Fed's interest rate decision has been basically digested by the market. It is necessary to pay attention to the profit-taking of bulls and the possibility of a "shoe landing" market, but the geopolitical situation tends to continue to support gold prices, which may limit the short-term correction space of gold prices.

From a technical perspective, before falling below the high of 2431.87 on July 24, gold prices tend to continue to fluctuate upward in the short term, and are expected to test the resistance near the historical high of 2483 again.

Powell hints at possible rate cut in September, Fed policymakers more confident inflation is falling back toward target

The Federal Reserve kept interest rates unchanged on Wednesday, but President Powell said policymakers may be ready to reduce borrowing costs as early as the next meeting in September, and recent data has strengthened their confidence that inflation is moving closer to the 2% target.

Powell's remarks at a press conference after the policy meeting seemed to endorse the policy reversal in September. The Fed's latest policy statement also partially reflects this.

The Federal Open Market Committee (FOMC) said in a statement: "Some further progress has been made toward the committee's 2% inflation goal." The Fed previously announced that it would maintain the target range of the benchmark overnight interest rate unchanged at 5.25%-5.50%.

Powell went a step further and told reporters that as long as future inflation data confirms the recent trend of falling inflation, "we are increasingly confident in taking action at the next meeting."

The U.S. personal consumption expenditures (PCE) price index rose 2.5% year-on-year in June, and the increase in 2022 exceeded 7%. Moreover, the recent month-on-month reading of the PCE price index shows that inflation is closer to the target. This is the inflation indicator favored by the Federal Reserve.

Investors believe that Powell's speech clearly opens the door for the Federal Reserve to reduce borrowing costs at its September 17-18 meeting, which will be only seven weeks away from the US election on November 5.

"From his speech, it can be seen that they are ready to cut interest rates in September and they will keep their options open," said Mark Malek, chief investment officer of SIEBERT NEXT.

Powell's speech pushed interest rate futures, stocks and Treasury bonds up sharply. The CME FedWatch Tool shows that the probability of a 50 basis point rate cut in September has jumped to about 15%. However, Powell said that a 50 basis point rate cut is not something they are considering.

Although Fed policymakers are wary of any actions that may undermine their monetary policy-making approach that depends on "data rather than politics", the steady decline in inflation in recent months has led policymakers to generally believe that the inflation-fighting war is nearing its end.

The Fed said inflation is now "somewhat" elevated, a key softening of language that the central bank had previously described as "elevated" for much of its inflation-fighting war.

Powell said at a news conference that "we have not made decisions about future meetings" and that all policy decisions will be made on a meeting-by-meeting basis. But he added that as Fed policymakers gain confidence that price pressures are easing, "the economy is approaching a time when it would be appropriate to lower the policy rate."

The Fed's latest policy statement also removed long-standing language that "inflation risks are of high concern," replacing it with an acknowledgment that policymakers are now "focused on risks to both sides of their dual mandate," the congressionally mandate to achieve full employment while maintaining price stability.

Fed policymakers have previously said that given the time it takes for monetary policy to affect the economy, it would be appropriate to lower borrowing costs before inflation actually returns to its target level.

The Fed said in its statement that the economy has so far "continued to expand at a solid pace," and while "job gains have slowed somewhat," the unemployment rate "remains low."

But unemployment has been rising, and policymakers have recently focused more on avoiding the kind of spikes in unemployment that are often associated with higher rates and slowing inflation.

In its statement, the Fed stopped short of committing to a rate cut in September and reiterated that policymakers still need "greater confidence that inflation is moving back toward 2% on a sustained basis" before lowering borrowing costs.

But the language changes appear to be in line with investors' long-held expectations that that level of confidence will be reached in September. The Fed raised rates aggressively between March 2022 and July 2023, raising its benchmark rate by a cumulative 5.25 percentage points in response to the worst inflation in 40 years. FOMC policymakers were unanimous in Wednesday's rate decision.

U.S. wage growth fell to the slowest pace in 3-1/2 years in the second quarter, adding to the case for a September rate cut

U.S. labor costs rose modestly in the second quarter, with private sector wages growing at the slowest pace in 3-1/2 years, adding to evidence that inflation is on a steady downward trend, adding to the case for a September rate cut.

Wednesday's report from the Labor Department follows data last week showing a sharp drop in inflation last quarter, with all measures below 3%. As the job market continues to slow, labor costs could cool further.

A modest rise in labor costs is likely to be welcomed by Federal Reserve officials, who will wrap up their two-day policy meeting on Wednesday. The Fed is expected to keep its benchmark overnight interest rate target range at 5.25%-5.50%. Rates have remained at that level since July last year.

"Private sector wage growth is more in line with what Fed officials would like," said Christopher Rupkey, chief economist at FWDBONDS in New York. "The economy is gradually returning to normal. Slowing wage growth gives the Fed a green light to cut interest rates."

The Bureau of Labor Statistics said the employment cost index (ECI), the broadest measure of labor costs, rose 0.9% in the second quarter and confirmed a 1.2% increase in the first quarter.

Economists surveyed had forecast the ECI would rise 1.0%. Labor costs rose 4.1% year-on-year in June, the smallest increase since the fourth quarter of 2021, and rose 4.2% year-on-year in March. The annual increase in labor costs has slowed from 4.5% in June 2023.

Policymakers consider the ECI one of the better measures of labor market slack and a predictor of core inflation because it adjusts for changes in the composition of the labor force and the quality of jobs. The Fed's inflation target is 2%.

"Today's data marks an important step in the Fed's direction toward 'greater confidence' that inflation has cooled enough to start lowering the federal funds rate," said Sarah House, senior economist at Wells Fargo.

The slowdown in wage gains was also confirmed by Wednesday's ADP jobs report, which showed that wages for employed workers rose 4.8% year-on-year in July, the smallest increase in three years.

There was also some encouraging news for the troubled housing market. A report from the National Association of Realtors (NAR) showed that pending home sales rebounded 4.8% in June after falling 1.9% in May as supply improved, however, that doesn't mean the market is turning a corner as affordability remains a challenge. Pending home sales fell 2.6% year-on-year in June.

"Higher mortgage rates and high home prices will be a headwind for homebuyers in the near term," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. "But as the Fed starts to cut rates, higher inventories and lower borrowing costs should have a positive impact on home sales for some time." (END)

Dollar falls as Fed signals possible rate cut in September

The dollar's losses deepened on Wednesday after the Federal Reserve kept interest rates unchanged but left the door open to lower borrowing costs as soon as its next meeting in September.

"The Fed wants to let the data play out for a while, even at the risk of falling behind the curve," said Adam Button, chief currency analyst at ForexLive in Toronto.

Traders have fully priced in a September rate cut, which could reduce pressure on the Fed to signal some kind of action then.

"Everyone in the market knows it's priced in, and the Fed knows it's priced in, so not pushing back is a tacit agreement with market pricing," Button said.

Traders also expect the Fed to cut rates for the second and possibly third time before the end of the year.

The dollar index fell as high as 103.92, and fell 0.4% to 104.05 in late trading, with a drop of 1.7% in July.

The next important U.S. economic data that may drive Fed policy will be the July government employment report released on Friday. According to the median estimate of economists surveyed by Reuters, the report is expected to show that employers added 175,000 jobs that month.

UN Secretary-General: The attacks in the southern suburbs of Beirut and Tehran represent a dangerous escalation

On July 31, local time, UN Secretary-General Guterres issued a statement through his spokesman. Guterres said in the statement that the recent attacks in the southern suburbs of Beirut, Lebanon and Tehran, Iran are a dangerous escalation.

The statement said that at present, all parties should work towards a ceasefire in Gaza, release all detained persons, increase humanitarian assistance to Palestinians in Gaza, and restore peace on both sides of the temporary border between Lebanon and Israel (also known as the "Blue Line"). But on the contrary, all that can be seen at present are events that undermine the achievement of these goals.

The spokesman said that the UN Secretary-General has always called on all parties to exercise maximum restraint, but at this extremely sensitive moment, restraint alone is not enough. The UN Secretary-General urged all parties to actively work to ease the situation in the region for comprehensive long-term peace and stability.

The statement said that the international community must work together to take urgent measures to prevent any incidents that may push the Middle East to the brink of crisis and have a devastating impact on civilians. To achieve this goal, it is necessary to promote comprehensive diplomatic actions to promote the easing of the regional situation.

US media: Iranian leaders ordered a direct attack on Israel

Iran and Hamas accused Israel of assassinating Haniyeh, who was in Tehran to attend the inauguration ceremony of Iran's new president. It is not clear how strong Iran's response will be, or whether it will adjust its attack again to avoid escalation.

Iranian military commanders are considering another joint drone and missile attack on military targets near Tel Aviv and Haifa, but will be careful to avoid civilian targets, Iranian officials said. One option under consideration is to launch coordinated attacks from Iran and other allied fronts, including Yemen, Syria and Iraq, for maximum effect.

US and Europe urgently mediate to prevent a full-scale war in the Middle East

According to the Financial Times, after Israel attacked Hezbollah and Hamas leaders in Beirut, the capital of Lebanon and the capital of Iran, Iran and Hezbollah vowed to retaliate for the attacks, and concerns about a wider regional conflict soared.

US and EU diplomats are holding urgent discussions around the Middle East to try to prevent the threat of a full-scale regional war. Mora, one of the EU's top diplomats, held important talks with Iranian officials.

Meanwhile, Brett McGurk, the US National Security Council's coordinator for the Middle East and North Africa, is holding talks in Saudi Arabia. Officials said the talks focus on persuading Iran to either not respond or take symbolic action.

The White House sought to downplay the possibility of an all-out war, although officials privately acknowledged that this was one of the most sensitive moments since Oct. 7.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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Gold trading reminder: Double good news! Powell hinted at a rate cut in September, Iran ordered a counterattack, and the price of gold soared by nearly $40 to a nearly two-week high

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