Overnight, spot gold fell first and then rose, falling to near 1752 at one point, and then rebounded sharply more than $20, closing up 0.38% at $1776.87. Gold rose slightly in early Asian trading today and is currently rising near $1782.
COMEX's most active gold futures contract on December 15, 22:34 Beijing time in one minute to trade 2670 lots, the total value of the contract is 471 million US dollars.
Gold fell sharply and sharply, mainly affected by the Fed's decision, and overnight, the Fed once again became the "protagonist" of the global market.
Fed turn eagle: Bond reduction accelerates, or three rate hikes next year
At 03:00 Beijing time on December 16, the Federal Reserve Open Market Committee (FOMC) announced the last interest rate decision in 2021, and half an hour later, Fed Chairman Powell held a press conference.
First, the Fed announced that the members of the Fed's Monetary Policy Committee FOMC unanimously agreed to keep the target range of the policy rate, the federal funds rate, unchanged at 0%-0.25%, in line with market expectations.
At a subsequent press conference, Fed Chairman Jerome Powell said that high inflation in the United States forced the Fed to accelerate taper (code reduction QE), doubling the rate of code reduction QE to reduce debt purchases by $30 billion per month. This means that the size of the Fed's bond purchases will fall to $60 billion in January next year, and the entire bond purchase program will end by the end of the first quarter of next year.
The wording of the Fed's decision statement is slightly hawkish, after the decision was announced, the spot gold price fell by $10 in the short term and then recovered most of the decline, the dollar index fell back after the short-term rush, and other non-US varieties fell to varying degrees.
Source: Jintou Network
Before the Fed decision, gold has fallen in advance, and after the Fed decision, the debt reduction boots have accelerated to land, and the gold price has come out of a wave of selling expected to buy the fact.
In addition, the US stock market also suppressed first and then rose, originally showing a narrow range shock trend, and both closed down, but after the ANNOUNCEMENT of the FOMC decision, the three major stock indexes suddenly jumped and reversed the red.
As of the close, the Dow was up 1.08%, or 383.25, at 35,927.43, with an intraday quake of 554. The S&P 500 rose 1.63% at 4709.85 points; the NASDAQ rose 2.15% at 15565.58;
For the reasons why the stock market is not afraid of the "eagle sound" and closes up, some analysts pointed out that although the FOMC resolution is aggressive, it is basically in line with market expectations, and it also clarifies the future monetary policy, eliminating a great uncertainty in the market, so the US stock market jumped after the resolution was released.
Accelerating the reduction of the scale of bond purchases has long been fully expected by the market, compared with when the Fed starts to raise interest rates, and the market is more concerned.
The dot plot shows that more than 60 percent of Fed officials expect three rate hikes in 2022, while 60 percent expect three more rate hikes in 2023 and 70 percent expect two rate hikes in 2024.
According to the futures trend, traders believe that the probability of the Fed raising interest rates in April next year is 90%, and the probability of raising rates in May is 100%. Now, the Fed's interest rate hike expectations have advanced from June to April.
The minutes show that the Fed expects the federal funds rate to be 2.1% by the end of 2024. You know, the current Fed's benchmark interest rate is 0%-0.25%, to reach the 2.1% level in 2024, according to the practice of 25 basis points per rate hike, at least 8 times (the path of interest rate hikes in the next three years has been passed out). Then raise interest rates three times in 2022, three times in 2023, and two more in 2024.
However, some institutions have simulated what will happen when the Fed makes three rate hikes in 2022 and hints that interest rates will continue to raise interest rates until they reach 2.5%, thus pushing up US Treasury yields and credit spreads. The simulation results: the U.S. economy is in recession in early 2023.
It is also worth noting that in the FOMC statement, the Fed removed the phrase "expected to be temporary" about inflation.
Some market views suggest that the Fed has made a mistake on the issue of the "temporary" nature of inflation. Initially, the Fed thought inflation would fall back after the summer of 2021, or it would act. Later, the Fed said it would wait and see until mid-2022. If the Fed had stuck to its original schedule, it would have started speeding up taper earlier. Now the Fed is pushing itself into a difficult situation and must cut the rate of bond purchases as quickly as possible, followed by interest rate hikes. The biggest uncertainty now is the Covid-19 variant and its impact on economic growth and inflation. Global restrictions on the new variant of the virus will exacerbate supply chain problems, further increasing inflationary pressures, and the Fed may have to make tough choices again.
During the day, investors focused on the Bank of England, the European Central Bank interest rate decision, and the number of initial jobless claims is also worth paying attention to.
The ECB and Bank of England decisions hit
At 20:00 Hong Kong time on Thursday, the Bank of England will announce the interest rate decision. Amid uncertainty about the Omikejung variant virus, expectations for the Bank of England's first post-pandemic rate hike in December have cooled, but this possibility has not been completely ruled out.
Citi expects the Bank of England's Monetary Policy Committee to leave interest rates unchanged on Thursday. The spread of the Omikejong mutation has replaced the end of the vacation program as a key uncertainty. However, tight labor markets and some signs of increased demand mean that the Monetary Policy Committee is still likely to signal tightening policy in early 2022.
At 20:45 Hong Kong time, the European Central Bank will announce the interest rate decision; at 21:30 Hong Kong time, ECB President Lagarde will hold a press conference. The ECB is expected to maintain a dovish stance, with euro zone spreads indicating that the market expects support to be curtailed.
The market expects the ECB to leave the three major interest rates unchanged, of which the deposit rate will remain unchanged at negative interest rates of -0.1%. The ECB may announce that the €1.85 trillion Emergency Anti-Epidemic Bond Purchase Program (PEPP) will end in March next year.
However, hawks and doves within the ECB are currently discussing how to continue to support the economy after the stimulus package is over.
How does the gold market go?
Saxo Bank believes that inflation remains one of the biggest threats to the U.S. economy, with the consumer price index likely to rise by 15 percent in 2022, overshadowing the last major inflationary environment that emerged in the 1970s.
John Williams' Shadow Government Statistics show that inflation has reached 15 percent, based on methods adopted before 1980. Inflation is calculated according to the 1990 methodology, which is above 10 per cent.
If the Fed tries to catch up with the economic curve, it will lead to a new recession, and next year may see a sharp reversal of the yield curve, and short-term interest rates will rise faster than the long-term trend, which means that real interest rates will remain low, which is a good environment for gold.
From a technical point of view, gold fell yesterday and closed near the $1770.00 level. Gold is trying to break below $1770.00, thus consolidating expectations of a bearish trend domination. We expect gold to fall to the next bearish target at $1734.00.
On the other hand, we note that gold prices have completed the construction of the bearish pennant, which forms a bearish momentum, and we expect this factor to push gold prices to continue to decline. Unless gold bounces above $1797.00 and holds above this level, we will maintain a bearish outlook for some time to come.