On Monday morning, October 26, spot gold in London traded lower in a choppy session. During Friday's U.S. session, gold prices fell below the psychological $4,000 mark, and New York futures gold also lost that level in early trading today, with prices hitting a fresh low since late July.
This week is a macro "super week": at 2:00 a.m. Beijing time on Thursday, October 29, the Federal Reserve will announce its interest rate decision, with the market consensus expecting rates to stay unchanged at a ceiling of 4.00%. At 20:30 on Thursday, the preliminary annualized quarter-on-quarter growth rate for U.S. third-quarter real GDP and the September core PCE price index will be released.
On the macro front, as of the week ended October 25, the U.S. economic picture continued to show a mild stagflation pattern: manufacturing and the labor market remain resilient, while real estate and consumer confidence are cooling faster, and inflation expectations are picking up again. On the data side, the NAHB housing market index fell to 29 on October 19, the lowest since June 2012. September housing starts came in at an annualized 1.221 million units on October 20, below the expected 1.305 million, with the prior reading revised up from 1.275 million to 1.288 million. September pending home sales fell 7.3% month-on-month and 11.3% year-on-year the same day, hitting a record low.
On the employment side, initial jobless claims for the week ended October 17 came in at 194,000, below the expected 200,000 and the prior 199,000, marking the lowest since mid-July and the sixth consecutive week below the 200,000 threshold. However, continuing claims rose to 1.728 million, above the expected 1.72 million and the prior 1.71 million, a six-week high. The preliminary U.S. S&P Global manufacturing PMI for October came in at 56, above the expected 55.5, while the University of Michigan October consumer sentiment final reading was 48.0, slightly below the prior 48.1.
On the geopolitical front, large-scale riots broke out in France, sharply pushing up long-term French government bond yields, fueling concerns about a resurgence of the European debt crisis and weighing on the euro. In response to the turmoil in the French bond market, Bessent said he does not expect France's problems to spill over, but acknowledged that safe-haven flows are moving into U.S. Treasuries. The U.S. and Iran maintained indirect negotiations ahead of the U.S. midterm elections on November 3 and Israel's parliamentary elections on October 27, with Trump publicly promising not to launch an attack on Iran before the elections, so the market has not yet priced in an escalation of conflict. However, attacks on ships in the Strait of Hormuz are increasing, and on October 25 the Saudi-led coalition intercepted a ballistic missile fired by Houthi forces toward Riyadh.
Earlier remarks by Warsh weakened investor expectations for another rate hike in October, but against a backdrop of consecutive upside inflation surprises, a resilient labor market, and a manufacturing PMI still in expansion territory, the probability of another Fed rate hike in December continues to be priced in. High nominal interest rates and a strong dollar raise the opportunity cost of holding gold. Last week's price action also showed that gold is more sensitive to the transmission chain of "high oil prices → entrenched inflation expectations → rising rate hike expectations → higher real rates." The Fed's October policy meeting is scheduled for October 28, and it will most likely keep rates unchanged at 3.75%–4.00%. The key will be the degree to which the policy statement and Warsh's press conference hint at a December hike. However, high oil prices and elevated inflation expectations are offsetting slowing economic growth, leaving Fed policy effectively in a dilemma. This combination provides some medium-term support for gold's credit-hedging and stagflation-resistant properties, but before the election window and the December meeting are resolved, geopolitical risks are unlikely to generate trend-following buying and are more likely to manifest as pulse-like volatility.
Author: Li Qi. Practitioner qualification: F3046227. Trading advisory qualification: Z0016145. Disclaimer: The information in this report is sourced from publicly available materials, and our company makes no guarantee as to its accuracy, reliability, or completeness, nor does it guarantee that the information and suggestions contained herein will not change. We have sought to make the report objective and fair, but the views, conclusions, and suggestions herein are for reference only and do not constitute any recommendation of specific products or businesses or any basis or advice for operations in related instruments. Investors who make investment decisions based on this bear their own profits and losses, and neither our company nor the author is responsible.
Comments