On September 14, overnight news, U.S. CPI data was released, consumer prices unexpectedly rose in August, consolidating bets on aggressive interest rate hikes by the Federal Reserve, the dollar jumped, and spot gold fell by more than $30, falling below $1,700 an ounce pass.
The latest data released by the United States shows that the annual rate of core CPI without seasonal adjustment in August was 6.3%, the highest since March 2022. Data show that in August CPI rose 0.1% month-on-month. Home prices rose 8.3% from a year earlier, a slight slowdown. The core CPI, which strips out the volatile food and energy components, rose 0.6% from July and 6.3% from a year earlier. All figures were higher than expected. Housing, food and healthcare are the biggest drivers of price increases.
Tai Wong, senior trader at Heraeus Precious Metals, said, “Gold prices fell on higher-than-expected CPI, and a 75bps rate hike is now a certainty. The dollar is surging and may continue to weigh on gold.”
Today, spot gold fluctuates slightly and is currently around the 1700 line.
As of press time, the spot gold price was reported at $1,704.96 per ounce.
U.S. economy to hit hard landing early next year
The US Labor Department said on the 13th that the US consumer price index in August rose 8.3% year-on-year, higher than the 8.1% expected by economists. Fox Business News said that was a worrying sign for the Fed.
Stronger-than-expected U.S. inflation in August could keep the Fed on track to raise interest rates by 75 basis points for the third straight time. Accelerating inflation suggests that the cost of living for Americans remains high, and despite the current easing in the cost of living for Americans, price pressures remain historically high and pervasive, suggesting that the Fed’s inflation target has a long way to go. Way to go. Traders have ramped up bets that the Fed will raise rates by 75 basis points, a pricing they now see as a foregone conclusion.
According to Fox Business News, the U.S. inflation rate remained higher than expected in August, increasing the possibility of a historic and large-scale interest rate hike by the Federal Reserve.
Desmond Rahman, an economist at the American Enterprise Institute, said the disappointing consumer price index left the Fed with no choice but to raise rates by 75 basis points at its policy meeting next week, which also added to the The possibility of a hard landing for the U.S. economy early next year. Market investors even believe that the intensity of interest rate hikes may reach a historic scale of 100 basis points.
Nomura: Is the Fed on the verge of its biggest rate hike in 40 years?
Economists at Nomura Securities became the first Wall Street firm on Tuesday to predict the Fed’s benchmark short-term interest rate would rise by a full percentage point after another dismal U.S. inflation report.
“We continue to believe that markets are underestimating just how entrenched U.S. inflation is and the strength of the Fed’s response that may be needed to neutralize it,” economists at Nomura wrote in a note to clients.
The last time the Fed took such an aggressive move was in the early 1980s, another period marked by high inflation. At its last two meetings, the Fed raised rates by 0.75 percentage points.
The consumer price index rose just 0.1% in August, largely due to another sharp drop in oil prices. Annual inflation fell to 8.3% from 8.5%. But that’s pretty much all good news. Prices of almost everything went up in the last month, including food, rent, clothes, furniture, cars, medical care and more.
As a result, another price gauge, which the Fed sees as a better indicator of future inflation trends, rose sharply in August and posted its highest annual growth rate in five months.
The so-called core CPI inflation rate climbed to 6.3% in August from 5.9% the previous month.
Nomura said the pullback in core rates was a call for bolder action. “We believe it is becoming increasingly clear that we need to take a more aggressive path of rate hikes to counter the increasingly entrenched labor market overheating, unsustainably strong wage growth and rising inflation expectations,” the firm’s analysts wrote. inflation.”
The Fed’s short-term interest rate, known as the federal funds rate, is currently hovering between 2.25% and 2.5%. The cost of most consumer and business loans is tied to interest rates.
Nomura expects rates to rise to a range of 3.25%-3.5% at the Fed’s strategy meeting next week and then continue to rise until reaching a high of 4.75% in 2023.
Analyst view
On September 13, analysts at Societe Generale said that persistently high inflation would still be a headwind for gold, as rising consumer prices will force the Federal Reserve to keep interest rates high for most of next year.
The Bank of France released its latest commodity forecast, with analysts saying they expect gold prices to fall to $1,550 an ounce in the third quarter of 2023 as real interest rates remain high.
However, analysts also said that gold prices may struggle in the next 12 months, but the Fed is expected to stop raising interest rates in the first quarter of next year. Analysts added that the Fed could start easing interest rates again by the end of the third quarter of 2023.
Analysts at Societe Generale said: “After the third quarter of 2023, gold’s fortunes should reverse, as our economists expect a mild recession in the US in early 2024 and slower growth in the EU and Asia Investors are likely to shift some of their asset allocations to gold as a hedge against such risks. At this point, we expect the Fed to turn dovish again and inflation to be somewhat contained, albeit above pre-pandemic levels. “
The bank expects gold to trade at $1,650 an ounce by the end of 2023, recovering to $1,900 an ounce by the end of 2024.
Societe Generale also noted that the U.S. economy, if resilient, will avoid a recession next year, putting further pressure on gold prices as that would support the dollar. However, a prolonged recession will provide some support for gold prices next year.