On Tuesday (October 15th), in the Asian morning session, spot gold fluctuated within a narrow range, currently trading near $2,648.42 per ounce. Gold prices rose and then fell on Monday. Although geopolitical tensions earlier provided safe-haven buying support for gold prices, which once rose to a one-week high of $2,666.70 per ounce, as the US dollar rebounded to a ten-week high, gold prices gave up their gains and closed slightly lower at $2,648.49 per ounce. On the one hand, several Federal Reserve officials made hawkish speeches, supporting the rise of the US dollar; on the other hand, two informed officials revealed that Israeli Prime Minister Netanyahu stated that he plans to strike Iran's military facilities, not oil or nuclear facilities, which implies that Israel will take a more limited counterattack to prevent a full-scale "war". At the end of Monday, safe-haven buying of gold weakened.

Phillip Streible, Chief Market Strategist at Blue Line Futures, said, "Gold faces many small resistances," including stimulus policies from major Asian countries, a stronger US dollar, a weaker euro, softer base metals, and profit-taking. The record rise in gold prices in the past few months has suppressed investor confidence and gold demand from major Asian countries. A stronger US dollar makes gold more expensive for holders of other currencies. Investors will also pay attention to the speeches of Federal Reserve officials this week to find more hints about upcoming interest rate cuts, while also paying attention to US retail sales data. Traders believe that the probability of the Federal Reserve cutting interest rates by 25 basis points at the November meeting is about 82%. Lower interest rates reduce the opportunity cost of holding non-interest-bearing gold. This trading day needs to continue to pay attention to the speeches of other Federal Reserve officials and geopolitical news, and to watch the US October New York Fed Manufacturing Index.

Advertisement

Federal Reserve Governor Waller calls for "greater caution" on interest rate cuts

Federal Reserve Governor Christopher Waller pointed out on Monday that recent data shows an increase in inflation rates, and the US economy and labor market are stronger than previously expected, calling for "greater caution" in future interest rate cuts. "No matter what happens in the near term, my basic view remains that policy rates should be gradually reduced over the next year." Waller said in a speech at the Shadow Open Market Committee meeting held at the Hoover Institution at Stanford University. The Federal Reserve's policy rate is restrictive, the labor market remains healthy even when labor demand slows down, and the inflation rate is "close" to the Federal Reserve's 2% target. Waller said that after the Federal Reserve unexpectedly cut policy rates by half a percentage point in September, as long as the labor market does not suddenly deteriorate and inflation continues to decline as he expected, the Federal Reserve should now act at a "prudent pace." "I believe that, looking at the overall data, the pace of monetary policy rate cuts should be more cautious than needed at the September meeting," Waller said, noting that recent economic data revisions show that households are still spending, and lower rates may release "suppressed demand" for large goods. "I will pay attention to whether the data on inflation, the labor market, and economic activity announced before the next meeting confirms or weakens my inclination to be more cautious about easing monetary policy." Waller warned that in the near term, recent hurricanes and strikes at Boeing may make it difficult to interpret the job market, and he estimates that the monthly job increase in October may be reduced by 100,000. However, he predicts that looking forward, job growth will gradually slow down, and the unemployment rate will gradually rise, but will remain at a historical low. He said that the economic conditions are good, and the Federal Reserve should use policy to maintain this situation. "We are now in the best state, and we must maintain this state, which is our job." Waller also warned against linking his outlook on monetary policy to the established pace of interest rate cuts. He said that if the inflation rate rises unexpectedly, the Federal Reserve may pause interest rate cuts; if the inflation rate is below the Federal Reserve's 2% target, or if the labor market unexpectedly collapses, the Federal Reserve may cut interest rates ahead of schedule. But if everything goes as he expects, "we can continue to shift policy towards a neutral stance at a prudent pace" to avoid unnecessarily slowing down the economy.

Federal Reserve Kashkari: More small interest rate cuts will be made in the future, and the neutral interest rate will be higher than before the pandemic

Minneapolis Federal Reserve Chairman Neel Kashkari said on Monday that as the 2% inflation target is within sight, the Federal Reserve may make more interest rate cuts in the future. "From the current situation, it seems appropriate to further slightly reduce our policy interest rates in the next few quarters to achieve our dual mandate," Kashkari said in a speech at a meeting held by the Central Bank of Argentina, adding that "ultimately, the future policy path will be driven by actual economic, inflation, and labor market data." Kashkari said that the current monetary policy stance, with the federal funds rate target range at 4.75%-5%, still restricts economic growth, although the degree of restriction is unclear. He said that the Federal Reserve "is in the final stage of reducing the inflation rate to the 2% target," while noting that recent strong labor market data shows that the labor market remains strong and is not on the verge of a rapid slowdown. When Kashkari spoke, the Federal Reserve was weighing how much it could lower the interest rate target in the face of easing price pressures and a still strong economy. Kashkari pointed out that in terms of its impact on the economy, the neutral interest rate is likely to be higher than before the COVID-19 pandemic. He said that the Federal Reserve has been able to raise interest rates to such high levels in recent years without harming the economy, "which tells me that the neutral interest rate has likely risen compared to before the pandemic." Looking forward, "interest rates may be higher under normal circumstances," Kashkari said, while adding, "there is a huge amount of uncertainty about all of this."

The US dollar rose to a 10-week high

The US dollar touched a 10-week high in light trading on Monday, extending its weeks-long bullish trend, as data showed that the US economy is only moderately slowing down, in line with bets on moderate interest rate cuts by the Federal Reserve. Trading was light due to several markets, including Japan and Canada, being closed on Monday. The US bond market was closed for a holiday. The US dollar index, which measures the US dollar against six major currencies, rose to 103.36 at one point during the session, the highest since August 8th, and closed at 103.20, up about 0.26%. The market expects the European Central Bank to cut interest rates this week, but the Federal Reserve remains the focus of market attention. According to estimates from the London Stock Exchange Group (LSEG), the US interest rate futures market digests the possibility of the Federal Reserve cutting interest rates by 25 basis points at the November meeting at 87%, and the possibility of pausing interest rate cuts to maintain the target interest rate range at 4.75%-5% at 13%. About four weeks ago, the Federal Reserve significantly cut interest rates by 50 basis points at the last policy meeting. For the rest of this year, the futures market expects a total of about 45 basis points of interest rate cuts, and another 98.5 basis points of cuts in 2025. This is far lower than the market trend before the Federal Reserve's September meeting, which implied a total interest rate cut of about 200 basis points. The unexpected large increase in US non-farm employment positions in September prompted the market to readjust its interest rate cut expectations, expecting the total interest rate cuts in this easing cycle to be far lower than previous forecasts. Analysts said that expectations of smaller interest rate cuts have supported the US dollar in the past few weeks, but this adjustment is likely to be nearing an end. Marc Chandler, Chief Market Strategist at Bannockburn Global Forex in New York, said, "I suspect that (interest rate adjustments) have basically ended, and we are back in a downtrend. But I do think there is still a breath left."