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Gold trading reminder: major central banks around the world are "scrambling" to cut interest rates, gold prices are approaching record highs, pay attention to "terrible data"

2024-10-17

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In the early Asian session on Thursday (October 17), spot gold fluctuated at a high level and is currently trading around $2,676.93 per ounce. Gold prices rose to a record high on Wednesday, reaching an intraday high of $2,685.15 per ounce. Weaker U.S. Treasury yields and expectations of rate cuts by major central banks supported the rise of non-interest bearing gold, and ongoing geopolitical conflicts provided additional safe-haven support.

Gold hit a record high of $2,685.49 an ounce on September 26.

Peter A. Grant, vice president and senior metals strategist at Zaner Metals, said: "Expectations of a 25 basis point rate cut in November are consolidating, and weaker inflation data in Europe and the UK have increased expectations of more aggressive easing by the European Central Bank and the Bank of England, leading to a general decline in yields, which has boosted gold."

"We may even see gold approaching $3,000, which may be more like a target for the first quarter of 2025," he said.

U.S. Treasury yields fell to their lowest level in more than a week, making gold more attractive.

According to the CME FedWatch Tool, traders currently believe that the probability of a 25 basis point U.S. rate cut in November is about 94.1%.

The European Central Bank is expected to cut interest rates again on Thursday, while falling inflation in the UK suggests that the Bank of England will cut interest rates next month.

Delegates attending the annual meeting of the London Bullion Market Association (LBMA) predict that gold prices will rise to $2,941 and silver prices will jump to $45 per ounce in the next 12 months.

The monthly rate of U.S. retail sales in September will be released this trading day, commonly known as the "horror data", and investors need to pay close attention. Secondly, the changes in the number of initial jobless claims in the United States and the monthly rate of industrial output in September will also be released this trading day. Investors also need to pay attention to them. In addition, continue to pay attention to news related to the geopolitical situation.

The inflation rate fell to 1.7% in September, providing a basis for the Bank of England to cut interest rates

Data released by the UK National Statistics Office on Wednesday showed that the UK's inflation rate fell more than expected last month, among which the key inflation rate indicators that the Bank of England pays attention to also fell more than expected, which strengthened the market's bets on a rate cut in the UK next month.

The UK National Statistics Office announced that the year-on-year increase in the consumer price index (CPI) fell from 2.2% in August to 1.7% in September, the lowest since April 2021. Economists originally estimated that the inflation rate in September would be 1.9%. Core inflation, which excludes energy, food, alcohol and tobacco, fell to 3.2% from 3.6% in August.

Grant Fitzner, chief economist at the Office for National Statistics, said: "Lower airfare and gasoline prices were the main reasons for the decline in inflation in September. Rising prices for food and non-alcoholic beverages partially offset the above factors. This is the first time that food price increases have strengthened since the beginning of last year."

At the same time, there are signs that inflationary pressures will weaken in the future. The producer price index (PPI) fell 0.7% in September from a year earlier, the biggest drop since October 2020 during the epidemic.

U.S. import prices fell the most in nine months in September, providing a reason for the Fed to continue to cut interest rates

U.S. import prices fell the most in nine months in September as the cost of energy products fell sharply, indicating that the inflation outlook is positive and the Fed will continue to cut interest rates.

The report released by the Labor Department on Wednesday also showed that import prices, excluding fuel, have been basically flat over the past three months. Data released last week showed that consumer prices rose only slightly in September.

While producer prices were flat in September, some components showed strength, which is expected to mean the personal consumption expenditures (PCE) price index, a key inflation measure tracked by the Federal Reserve, rose from the previous month.

"Import prices do not pass directly through to producer and consumer prices, but they are a sign that inflation pressures remain subdued, providing some support for another rate cut in November," said Matthew Martin, senior U.S. economist at Oxford Economics. Import price increases will remain modest as factory-gate prices in China fall.

The U.S. Department of Labor's Bureau of Labor Statistics said import prices fell 0.4% from the previous month in September, the biggest drop since December 2023. August data was revised to a 0.2% drop, compared with a previous value of a 0.3% drop. The decline in import prices (excluding tariffs) in September was in line with economists' expectations.

Import prices fell 0.1% from a year ago in September, the first year-on-year decline in seven months, and rose 0.8% from a year ago in August. Fuel and lubricant import prices fell 7.0% from the previous month, dragged down by a 7.1% drop in oil prices, and fell 2.9% in August. Imported natural gas prices plunged 14.5%. Excluding fuel, import prices rose 0.1% month-on-month for the third consecutive month and rose 1.8% year-on-year. Food prices fell 1.5% in September after rising 0.2% in August, reflecting a 12.2% drop in vegetable costs.

Excluding fuel and food, core import prices rose 0.3% month-on-month after being flat for two consecutive months and rose 1.7% year-on-year.

The report also showed that export prices fell 0.7% month-on-month in September and fell 0.9% in August. Export prices fell 2.1% year-on-year in September, the biggest drop since January, and fell 0.9% in August.

Goldman Sachs expects the Fed to cut interest rates by 25 basis points each time

Goldman Sachs said on Wednesday that it expects the Federal Reserve to make consecutive interest rate cuts of 25 basis points each time from November 2024 to June 2025, with a terminal interest rate range of 3.25%-3.5%.

Last month, the Fed cut its overnight rate by 50 basis points, citing greater confidence that inflation will continue to fall back to its annual target of 2%. The overnight rate is currently 4.75%-5.00%.

According to the CME Fedwatch Tool, the market currently sees a 94.1% chance that the Fed will cut interest rates by 25 basis points at its next meeting, while the probability of keeping interest rates stable is only 5.9%.

Goldman Sachs also said it expects the European Central Bank to cut interest rates by 25 basis points at its monetary policy meeting on Thursday, and expects the ECB to make consecutive 25 basis point cuts until the policy rate reaches 2% in June 2025. (End)

U.S. Treasury yields fell for three consecutive days as investors firmed up expectations of a Fed rate cut

U.S. Treasury yields fell on Wednesday, with the 10-year Treasury yield falling for the third consecutive trading day, as investors adjusted their expectations for the path of interest rates ahead of data measuring consumer strength.

The 10-year Treasury yield has risen for four straight weeks, hitting 4.12% last week, the highest since July 31, after a strong jobs report dampened expectations that the Federal Reserve would cut interest rates by another 50 basis points at its November policy meeting.

Thursday will see the release of U.S. retail sales data, which will provide information on the health of the consumer.

"If the data is in line with expectations, it will most likely support the view that the consumer remains resilient and strong, therefore suggesting that ultra-fast rate cuts are not needed," said JoAnne Bianco, partner and client portfolio manager at BondBloxx.

"We factor this into our view of where value is in the market, and we think the yield recovery we've seen previously does provide an opportunity for investors to increase their fixed income allocation."

The 10-year Treasury yield fell 2.6 basis points to 4.012% on Wednesday, after hitting 3.995%, the lowest since Oct. 7.

ECB expected to cut rates for the second time in a row as inflation is under control but the economy is ugly

The European Central Bank may cut interest rates again on Thursday, citing the fact that inflation in the euro zone is now increasingly under control while the economy is stagnant.

The first back-to-back rate cuts in 13 years would mark a shift in the euro zone central bank’s focus from reducing inflation to protecting economic growth, which has lagged far behind the United States for two years.

The latest economic data is likely to tip the scales within the ECB in favor of rate cuts, with business activity and sentiment surveys and inflation readings for September all slightly below expectations. After the data were released, several ECB officials, including ECB President Christine Lagarde, said another cut in borrowing costs was likely this month.

“Trends in the real economy and inflation support lower rates,” said Holger Schmieding, an analyst at Berenberg Bank.

A 25 basis point cut on Thursday would take the deposit rate the ECB pays banks to 3.25%, with money markets almost fully pricing in three more rate cuts by March 2025. Lagarde and her colleagues are unlikely to give clear hints on future moves on Thursday, reiterating their view that decisions will be made “meeting by meeting” based on newly received data. But most ECB watchers believe a rate cut will be made at every meeting.

"The implicit signal is that unless the data improves, another rate cut is likely in December," said Paul Hollingsworth, an analyst at BNP Paribas.

The ECB can finally claim that it has all but brought the worst inflation in a generation under control.

Prices rose by just 1.8% last month. While inflation is likely to exceed the ECB's 2% target by the end of the year, it is expected to hover around that level or even slightly below it for the foreseeable future. However, the economy has to pay a high price for this. High interest rates have curbed investment and economic growth, which has struggled for nearly two years. The latest data, including industrial output and bank lending, suggest more of the same in the coming months.

The exceptionally resilient labor market is now also starting to show some cracks, with the job vacancy rate, or the ratio of vacancies to total jobs, falling from a record high. This has intensified calls within the ECB to ease policy before it is too late. The problem is that part of the reason for the weak economy is structural problems, such as high energy costs and low competitiveness that have held back Germany, Europe's industrial powerhouse. These problems cannot be solved by lowering interest rates alone, although rate cuts can help at the margin by making capital cheaper.

"We cannot ignore the headwinds to growth. At the same time, monetary policy cannot solve structural problems," said Isabel Schnabel, executive board member of the European Central Bank.

Israel attacks municipal building in southern Lebanon, killing 16 people, UNIFIL says its watchtower was attacked

Israel's air strikes on Wednesday destroyed the municipal headquarters in the southern Lebanese city of Nabatiyeh, killing 16 people, including the mayor. It was the largest attack on official buildings in Lebanon since Israel launched its air strikes.

Lebanese officials condemned the attack, saying it was proof that Israel's campaign against Hezbollah was turning against the Lebanese state. The attack also injured more than 50 people in Nabatiyeh.

Caretaker Prime Minister Mikati said the Israelis "deliberately attacked while the city council was in session," as the council was discussing services and relief in the city to help those displaced by Israeli military operations.

Separately, the United Nations Interim Force in Lebanon (UNIFIL) said its peacekeepers observed an Israeli tank firing at a watchtower near Kfar Kela in southern Lebanon on Wednesday morning. UNIFIL said two cameras were destroyed and the watchtower was damaged.

The Israeli army did not immediately comment on UNIFIL's statement. Israel has previously called on the United Nations to withdraw UNIFIL peacekeepers in southern Lebanon from the war zone to ensure their safety. UNIFIL said its troops had been attacked by Israel several times, but Israel disputed this claim.

Israeli Defense Minister Galant said during a visit near Israel's northern border that Israel would not stop its attacks on Hezbollah for the sake of negotiations.

Asked about Israel's attack on Nabatiyeh, U.S. State Department spokesman Matthew Miller would not comment on the specifics of the strike, but said the United States understands Hezbollah's operations in places such as civilian homes and supports limited strikes against the organization.

"Obviously, we don't want to see entire villages destroyed. We don't want to see civilian homes destroyed," Miller said. "So what we support is a limited invasion to attack and weaken Hezbollah, to weaken Hezbollah's infrastructure. No targeting of civilians, no destruction of homes, no destruction of villages, we support the operation to eliminate Hezbollah."

The Israeli army said on Wednesday that it had hit dozens of Hezbollah targets in the Nabatiye area, and its navy also hit dozens of targets in southern Lebanon.

The dollar hit an 11-week high, and inflation data pushed the pound to a two-month low

It should be reminded that the US dollar strengthened by 0.3% on Wednesday, hitting an 11-week high of 103.60, which made gold bulls still cautious. Some bulls took profits near the historical high, causing gold prices to fall slightly in late trading on Wednesday; on the one hand, investors ruled out the possibility of a sharp interest rate cut by the Federal Reserve at the next policy meeting and digested the possibility that former President Trump might win the election.

At the same time, the pound fell to a two-month low after the previously released UK inflation data was lower than expected, providing room for the Bank of England to cut interest rates more significantly, while the euro fell to an 11-week low before the European Central Bank meeting. However, the prospect of rate cuts from the Bank of England and the European Central Bank also provided support for gold prices.

But with the US presidential election coming up in a few weeks, investors' focus has shifted to the highly anticipated election and the interest rate path of the Federal Reserve.

Trump's plans to implement tax cuts, loosen financial regulations and increase tariffs are seen as positive for the US dollar. For example, higher tariffs will have a negative impact on economic growth in Asian and European exporters, which may force central banks in these countries to lower interest rates, thereby weakening their currencies while boosting the US dollar.

Amo Sahota, executive director of foreign exchange advisory firm Klarity FX in San Francisco, pointed out that several major central banks are expected to cut interest rates more than the Federal Reserve because their economies are slowing much faster than the United States. This provides support for the US dollar.

He also cited Trump's interview with Bloomberg News Editor-in-Chief John Micklethwait at the Economic Club of Chicago on Tuesday, in which the former president doubled down on his plans to impose high tariffs on US trading partners.

"Trump did talk some tough stuff on tariffs... although I think he was just making a point that he will do whatever it takes to stop people from "flooding the market with foreign products at the expense of American-made goods." Combined with the polls last night showing Trump slightly ahead... that was enough to make the dollar the best performing currency."

Investors will be watching Thursday's ECB meeting closely, though the impact on markets is likely to be modest if policymakers cut rates by 25 basis points, as currently expected by markets, and President Lagarde avoids giving too many clues about the rate outlook.

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: major central banks around the world are "scrambling" to cut interest rates, gold prices are approaching record highs, pay attention to "terrible data"

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