Gold Alert: PPI Data Bolsters Rate Cut Expectations, Will Bulls Regain Momentum?

On Monday (October 14th), in the Asian morning session, spot gold weakened with fluctuations, currently trading near $2,647.18 per ounce. Although U.S. inflation data reinforced the prospect of a rate cut next month, and the U.S. PPI data also suggested that the inflation outlook remains favorable, enhancing the expectation of a Fed rate cut in November, gold prices rose by more than 1% on Friday, closing at $2,657.02 per ounce. Additionally, the demand for safe-haven gold was also boosted by the geopolitical tensions in the Middle East. However, the continuous rebound of the U.S. dollar index, currently hovering near a two-month high, has caused some caution among gold bulls. Daniel Pavilonis, Senior Market Strategist at RJO Futures, stated: "The economy is still relatively strong, and the Fed is in a kind of contradiction. They are considering a rate cut because some areas have clearly slowed down, such as housing." The U.S. September producer prices were flat month-on-month, suggesting that the inflation outlook remains favorable, supporting the expectation that the Fed will cut rates again next month. Jim Wyckoff, Senior Market Analyst at Kitco Metals, said: "The Producer Price Index (PPI) data is favorable for the bulls in the precious metals market, suggesting that the Fed is still expected to cut rates twice this year, each time by 25 basis points." Pavilonis added: "Due to geopolitical tensions, inflation concerns, and the uncertainty of the election, it is expected that gold will reach $3,000 by 2025." On Monday in Asia, the U.S. dollar index fluctuated higher, currently trading near 103.08, with a gain of about 0.15%. Last Thursday, the exchange rate touched 103.18, a new high since August. In terms of physical gold, as the upcoming festival season attracts people to buy jewelry, Indian gold traders charged a premium for the first time in two months this week. There is relatively little economic data on this trading day, and investors need to pay attention to the impact of data such as China's CPI over the weekend, focus on the U.S. September New York Fed 1-year inflation expectation, pay attention to geopolitical news, and Fed officials' speeches. In addition, Monday is Columbus Day, and the U.S. Treasury bond market is closed. Japan is closed for Sports Day, and the Tokyo Stock Exchange is closed. This week will see the European Central Bank's interest rate decision and the U.S. September retail sales data, which investors need to focus on. Technically, gold prices are expected to fluctuate at higher levels this week. In the survey released last Friday, 15 analysts participated, with 7 (47%) expecting gold prices to rise in the coming week, 2 (13%) expecting prices to fall, and the remaining 6 (40%) holding a neutral stance. In the online survey, 157 retail investors voted, with 88 (56%) bullish, 43 (27%) bearish, and the remaining 26 (17%) expecting prices to consolidate.

U.S. September Producer Prices Unexpectedly Flat Month-on-Month, October Consumer Confidence Decreases

U.S. September producer prices were unexpectedly flat month-on-month, with a slight increase in service prices offset by a decrease in goods prices, suggesting that the inflation outlook remains favorable and supports the view that the Fed will cut rates again next month. Data released by the U.S. Department of Labor last Friday showed that the September Producer Price Index (PPI) was unexpectedly flat month-on-month, and Thursday's data showed that the September Consumer Price Index (CPI) rose slightly more than expected. However, some components of the Personal Consumption Expenditure (PCE) price index rose slightly, suggesting that core inflation in September will climb. The PCE price index is the Fed's preferred inflation indicator. "We expect a small rate cut of 25 basis points next month," said Paul Ashworth, Chief North America Economist at Capital Economics. "We still expect core price inflation to continue to slow down and return to the target level by the beginning of next year, but the risks to this view are no longer biased downwards." The U.S. Bureau of Labor Statistics said that the August final demand PPI rose 0.2% month-on-month, as previously estimated. Economists surveyed by Reuters had previously forecast a month-on-month increase of 0.1%. The PPI rose 1.8% year-on-year in September, up from 1.9% in August. Due to rising food prices, the September consumer price increase was slightly higher than expected. Most economists do not consider the rebound in inflation to be a sign that price pressures are intensifying again. Housing inflation cooled significantly in September. Nevertheless, high prices continue to affect consumers' views on the economy. A survey released by the University of Michigan last Friday showed that the October consumer confidence index fell to 68.9, with economists forecasting 70.8, and the September final value was 70.1. The consumer's 12-month inflation expectation rose from 2.7% in September to 2.9%. Confidence among supporters of all political parties decreased, but the decline among Republican supporters was greater. The PPI data showed that service wholesale prices rose 0.2% in September after rising 0.4% month-on-month in August. Among them, deposit service prices rose by 3.0%. Prices for machinery and vehicle wholesale, furniture retail, desktop and portable device application software publishing, and clothing wholesale also rose. After the PPI and CPI data were released, economists estimated that the September core PCE price index rose 0.2% month-on-month, which could be rounded up to 0.3%, and increased by 0.1% in August. However, the estimated six-month annualized growth rate of the core PCE price index is expected to slow down from 2.4% in August to 2.2%, which is a sign of a downward trend. The core PCE price index is expected to rise 2.6% year-on-year in September, with an increase of 2.7% in August. The PCE data will be released at the end of the month. September goods wholesale prices fell 0.2% month-on-month, with no change in August. Energy prices fell 2.7% in September after falling 1.0% in August. Gasoline prices fell 5.6%. Excluding the more volatile food and energy, goods prices rose 0.2% for the third consecutive month. This raises doubts about whether the rebound in core consumer goods prices in September was a one-time event. The core PPI, excluding food, energy, and trade, rose slightly by 0.1% in September after rising 0.2% month-on-month in August. The core PPI rose 3.2% year-on-year, up from 3.3% in August. Economists expect that the recent hurricanes that have ravaged Florida and large areas of the southeastern United States will not have a substantial impact on inflation.

U.S. Treasury Yields Fall, Market Believes November Rate Cut by the Fed is Almost Certain

U.S. Treasury yields fell last Friday, following data showing that producer prices were flat month-on-month, and the consumer confidence report kept the Fed on track to cut rates at the next monetary policy meeting. Christian Hoffmann, head of fixed income at Thornburg Investment Management, said that recent U.S. economic data is "creating confusion and raising doubts about the Fed's future actions." He pointed out that the labor market "does not feel like it is falling off a cliff," and "it is definitely too early to declare victory in the inflation fight." According to calculations by the London Stock Exchange Group (LSEG), the federal funds rate futures market believes that the probability of a 25 basis point rate cut next month is 95.6%, and the probability of the Fed keeping the policy rate range unchanged at 4.75%-5.0% is 4.4%. The futures market also believes that there will be about 48 basis points of rate cuts this year, with expectations of more than 50 basis points at the beginning of the week. The market expects the Fed to cut rates by about 102 basis points by 2025, with expectations of about 200 basis points before the release of last Friday's U.S. non-farm employment report.