Gold trading reminder: PPI data strengthens expectations of rate cuts, will bulls regain their momentum? Beware of strong dollar suppression

In the early Asian session on Monday (October 14), spot gold fluctuated and weakened, currently trading around $2,647.18 per ounce. Although US inflation data consolidated the prospect of a rate cut next month, US PPI data also suggested that the inflation outlook remained favorable, raising the Fed's expectations of a rate cut in November. Gold prices rose more than 1% on Friday to close at $2,657.02 per ounce, while safe-haven demand caused by geopolitical tensions in the Middle East also boosted gold. However, the US dollar index continued to rebound and is currently holding near a two-month high, making gold bulls cautious.

Daniel Pavilonis, senior market strategist at RJO Futures, said: "The economy is still relatively strong, and the Fed is still in a dilemma. They are considering cutting interest rates because some areas have slowed down significantly, such as housing."

US producer prices were flat month-on-month in September, suggesting that the inflation outlook remains favorable, supporting expectations of a rate cut by the Fed next month.

Jim, senior market analyst at Kitco Metals Wyckoff said: "The producer price index (PPI) data is bullish for the precious metals market, suggesting that the Federal Reserve is still expected to cut interest rates twice this year, each time by 25 basis points."

Pavilonis added: "Gold is expected to reach $3,000 by 2025 due to geopolitical tensions, inflation concerns and election uncertainty.

The US dollar index fluctuated higher in the Asian market on Monday, and is currently trading around 103.08, up about 0.15%. The exchange rate hit 103.18 last Thursday, the highest since August.

In terms of physical gold, with the upcoming holiday season, To attract people to buy jewelry, Indian gold dealers charged premiums for the first time in two months this week.

There are relatively few economic data on this trading day. Investors need to pay attention to the impact of China's CPI and other data last weekend, pay attention to the US New York Fed's 1-year inflation expectations in September, and pay attention to news related to the geopolitical situation and speeches by Fed officials.

In addition, Monday is Columbus Day, and the US Treasury market is closed. Japan is a sports day, and the Tokyo Stock Exchange is closed.

This week will usher in the European Central Bank's interest rate decision and the US September retail sales data, which investors need to pay close attention to.

From a technical perspective, gold prices tend to fluctuate at high levels this week.

In the survey released last Friday, a total of 15 analysts participated, of which 7 (47%) expected gold prices to rise in the next week, 2 (13%) expected prices to fall, and the remaining 6 (40%) were neutral. In the online survey, a total of 157 retail investors participated in the vote, of which 88 (56%) were bullish, 43 (27%) were bearish, and the remaining 26 (17%) expected prices to go sideways.

U.S. producer prices unexpectedly remained flat month-on-month in September, and consumer confidence fell in October

U.S. producer prices remained flat month-on-month in September, and service prices rose slightly The rise was offset by lower commodity prices, suggesting the inflation outlook remains favorable, supporting the view that the Federal Reserve will cut interest rates again next month.

Data released by the U.S. Labor Department on Friday showed that the producer price index (PPI) was unexpectedly flat in September from the previous month, and data on Thursday showed that the consumer price index (CPI) rose slightly more than expected in September. However, some components of the personal consumption expenditures (PCE) price index rose slightly, suggesting that core inflation will climb in September. The PCE price index is the inflation measure favored by the Federal Reserve.

"We expect a small 25 basis point rate cut next month," said Paul Ashworth, chief North American economist at Capital Economics. "We still expect core price inflation to continue to slow and return to target levels by early next year, but the risks to this view are no longer skewed to the downside. "

The U.S. Bureau of Labor Statistics said the final demand PPI rose 0.2% month-on-month in August. Economists polled by Reuters had forecast a 0.1% month-on-month increase.

The PPI rose 1.8% year-on-year in September, up 1.9% in August. Consumer prices rose slightly more than expected in September due to rising food prices.

Most economists do not see the rebound in inflation as a sign of renewed price pressures. Housing inflation cooled significantly in September.

Nevertheless, high prices still affect consumers' views on the economy. A survey released by the University of Michigan on Friday showed that the initial reading of the consumer confidence index fell to 68.9 in October, while economists predicted 70.8 and the final reading in September was 70.1.

Consumers' 12-month inflation expectations rose to 2.9% from 2.7% in September.

Confidence among supporters of all political parties declined, but the decline among Republican supporters was greater.

PPI data showed that wholesale service prices rose 0.2% in September after rising 0.4% month-on-month in August. Among them, the price of deposit services rose 3.0%. Prices also rose in wholesale of machinery and vehicles, retail of furniture, publishing of software for desktop and portable devices, and wholesale of apparel.

After the release of the PPI and CPI data, economists estimated that the core PCE price index rose 0.2% in September from the previous month, which is likely to be rounded to 0.3%, and rose 0.1% in August.

However, the six-month annualized growth rate of the core PCE price index is expected to slow to 2.2% from 2.4% in August, a sign of a downward trend. The core PCE price index is expected to rise 2.6% from a year ago in September, after a 2.7% increase in August. PCE data will be released at the end of the month.

Wholesale prices of goods fell 0.2% from the previous month in September, compared with a flat level in August. Energy prices fell 2.7% in September after falling 1.0% in August. Gasoline prices fell 5.6%.

Excluding the more volatile food and energy, commodity prices rose for the third consecutive month 0.2%. This raises questions about whether the rebound in core consumer goods prices in September was a one-off event.

The core PPI, which excludes food, energy and trade, edged up 0.1% in September after rising 0.2% month-on-month in August. The core PPI rose 3.2% year-on-year, compared with a 3.3% increase in August. Economists expect that the recent hurricanes that have ravaged Florida and large parts of the southeastern United States will not have a substantial impact on inflation.

U.S. Treasury yields fell as the market believes that the Federal Reserve's November rate cut is almost certain

U.S. Treasury yields fell last Friday after data showing that producer prices were flat month-on-month and a consumer confidence report kept the Federal Reserve on a path to cut interest rates at next month's monetary policy meeting.

Christian Hoffmann, head of fixed income at Thornburg Investment Management, said recent U.S. economic data is "creating confusion and will cast doubt on the Fed's future actions."

He noted that the labor market "does not feel like it has fallen off a cliff" and that it is "certainly too early to declare victory in the inflation battle now."

The federal funds rate futures market sees a 95.6% chance of a 25 basis point rate cut next month, and a 4.4% chance of the Fed keeping its policy rate range unchanged at 4.75%-5.0%, according to calculations by the London Stock Exchange Group (LSEG).

The futures market also sees about 48 basis points of rate cuts this year, compared with expectations of more than 50 basis points at the beginning of this week. The market expects the Fed to cut rates by about 102 basis points in 2025, compared with expectations of about 200 basis points before the release of the US non-farm payrolls report last Friday.

Blinken: Asia is concerned about the spread of Middle East conflict, and the United States is committed to using diplomacy to prevent the situation from escalating

U.S. Secretary of State Blinken said on Friday that Asia is deeply concerned about the prospect of the spread of the Middle East conflict, while the UN Secretary-General called for everything possible to avoid Lebanon from falling into "all-out war."

The Middle East conflict was a central topic at the East Asia Summit held in Laos on Friday. Blinken told the meeting that Washington was committed to diplomatic efforts to try to control the situation in the face of an axis of resistance led by Iran.

"The United States has been extremely focused for a year... on preventing these conflicts from spreading. We work on that every day," Blinken said at a news conference. "We are working very hard to prevent that through deterrence and diplomacy. We are also obviously deeply concerned about the plight of the men, women and children in Gaza."

Blinken said the United States has stressed to Israel the importance of meeting the humanitarian needs of the people of Gaza. He also said it was in Israel's interest for people forced to flee hostilities in Lebanon to be able to return home.

The annual summit of the Association of Southeast Asian Nations (ASEAN) also includes leaders and senior diplomats from India, China, Japan, the United States, Russia, South Korea, Australia and New Zealand, as well as UN Secretary-General Antonio Guterres.

Guterres condemned the Israeli military attack on the watchtower, which injured two UN peacekeepers from Indonesia. He said the incident violated international law and must not be repeated.

Guterres said that any spread of war in the Middle East would have a huge negative impact on the whole world, and called on all parties to exercise maximum restraint.