(Kitco News) Next week will be all about monetary policy as gold ends Friday under heavy selling pressure. With the fourth rate hike of 75 basis points already scheduled for Wednesday, the main question is whether the Federal Reserve will slow down after the November meeting.
A few data points already point to slowing growth and a looming recession, with some central banks, including the Bank of Canada, shifting to smaller rate hikes.
“Has the most intense phase of the global monetary tightening cycle passed? asked Michael Pearce, senior US economist at Capital Economics. “The Fed is still expected to make its fourth consecutive 75 basis point hike next week, but that increase could come with signals of a moderate pace of tightening ahead. This would follow the Bank of Canada’s cut this week to 50 basis points. rise and the perceived dovish tone that accompanied the European Central Bank’s 75 basis point hike on Thursday.”
Moving to a slower pace of rate hikes would be positive for gold, which is why some analysts are becoming more bullish on the precious metal.
“The Fed is going to walk away from increasing so aggressively. There may be talk of a pullback at the next meeting,” said Daniel Pavilonis, senior commodity broker at RJO Futures. “Gold hasn’t done too well in dollars. If we see the dollar come off, gold can do very well.”
The Fed has been very quick with its rate hikes, and it might be ready to “drop the pieces and see where they land,” Pavilonis told Kitco News.
However, not everyone is convinced that the Fed would be willing to ease off the accelerator.
“There are more signs of weakness, and investors are eager to heed it. But it won’t be an easy call to downgrade. Markets are getting complacent here,” said Edward Moya, senior markets analyst at OANDA. .
Markets could still get a strong labor market release and inflation report in November.
Next week will be volatile for gold, Moya told Kitco News. “Despite all the catalysts, gold is going to be anchored here for a while longer. I’m hesitant to join the pivot camp just yet. Many Fed speakers support a move to 50bps in December, but I think we are ready for a choppy market,” he said.
The terminal rate, which signals how willing the Fed is to raise rates, is also very crucial for the markets. And many analysts don’t see the US central bank stopping until it hits 5%.
At the last meeting, the Fed forecast indicated a rate hike of 4.4% this year and 4.6% next year.
After next week’s meeting, the Fed would have raised rates by 375 basis points this year, taking the federal funds rate to 3.75%-4%.
“Unfortunately, the data is not moving in the right direction, and we would likely need a noticeable slowdown in the monthly rates of core CPI increase…to give the Fed the confidence to moderate the pace of significantly,” said James Knightley, chief international economist at ING. “At this point, we’re just not confident this will happen in time for the December FOMC meeting, so there remains a strong possibility we’ll get a fifth consecutive 75 basis point hike from our current view. 50 basis points.”
Gold support levels moved from $1675 to $1620. And so far, that level has held despite a stronger US dollar and higher Treasury yields, said MKS PAMP metals strategist Nicky Shiels.
At the time of writing, December Comex gold futures were trading at $1,644.10, down 0.7% on the week.
“Prices significantly underperformed risk assets throughout October, but held up through the end of the month given the wealth destruction in Chinese and American tech,” said Shiels. “Flows were mostly flat overall (ETF selling offsetting COT shorting), indicated in prices on track to close only ~1% MoM.”
There is also the Bank of England
The Bank of England also has its rate decision next week, with market expectations ranging between a 100bp hike and a 50bp hike.
“We now think a 50 basis point rate hike is slightly more likely than the Bank of England’s 75 basis point rate hike and most economists seem to be expecting that,” he said. Knightly. “The committee will likely be sharply divided. But in recent speeches, policymakers have signaled that markets are overestimating the magnitude of the tightening ahead.”
Data next week
Tuesday: ISM US Manufacturing PMI
Wednesday: US ADP Nonfarm Payrolls, Federal Reserve Rate Decision, Powell Press Conference
Thursday: Bank of England rate decision, US unemployment insurance claims, US ISM non-manufacturing PMI
Friday: US Nonfarm Payrolls
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