Gold prices rose by 2% in August, hitting a historical high of $2,531.60 on August 20.
Data released by the U.S. Department of Commerce last Friday (August 30) showed that U.S. consumer spending grew robustly in July, indicating that the economy remains on a solid footing at the beginning of the third quarter. This does not support a 50 basis point rate cut by the Federal Reserve next month.
Alex Ebkarian, Chief Operating Officer of Allegiance Gold, said that the PCE data confirms that inflation is no longer the main focus of the Federal Reserve, as their attention has shifted to unemployment issues, further validating the possibility of a rate cut in September.
Investors are now eagerly awaiting this week's U.S. non-farm payrolls report.
According to the CME FedWatch tool, traders have slightly increased their bets on a 25 basis point rate cut by the Federal Reserve next month to 69%, while the likelihood of a 50 basis point cut dropped to 31% after the inflation report, down from 35% last Thursday. The market has fully priced in the expectation that the Federal Reserve will announce its first rate cut in over four years at the September meeting, with a cumulative rate cut of about 100 basis points expected in 2024.
The dollar index rose by 0.34% last Friday, marking three consecutive days of gains and closing at 101.72, the highest since August 20. Data showed that a key U.S. inflation gauge met forecasts, while personal spending and income increased, supporting the expectation of a 25 basis point rather than a 50 basis point rate cut by the Federal Reserve next month.
Some market participants had expected a substantial rate cut in September, believing that the Federal Reserve was lagging behind economic developments and needed to catch up.
Specific data showed that the U.S. Personal Consumption Expenditures (PCE) price index rose by 0.2% month-on-month in July, in line with expectations, with June's increase confirmed to be 0.1%. The year-on-year increase in the PCE price index was 2.5% in July, consistent with June's increase.
The year-on-year increase in the PCE price index was 2.5% in July, consistent with June’s increase and in line with economists’ expectations.
Excluding the volatile food and energy components, the core PCE price index rose by 0.2% month-on-month in July, consistent with June’s increase. The core PCE price index rose by 2.6% year-on-year in July, also consistent with June’s increase.
Over the three months ending in July, the core PCE price index rose at an annual rate of 1.7%. The Federal Reserve tracks the PCE price index to monitor progress towards its 2% inflation target. The Federal Reserve cumulatively raised interest rates by 525 basis points in 2022 and 2023, maintaining its policy rate target range at the current 5.25%-5.50% for over a year.
"The data suggests that the inflation rate is on track to return to the Federal Reserve's 2% target," said Pooja Sriram, an economist at Barclays Bank. “We maintain our base forecast for the Federal Reserve to cut rates three times this year.”
"The data provides no justification for a 50 basis point rate cut by the Federal Reserve," said Conrad DeQuadros, Senior Economic Advisor at Brean Capital. "This isn’t the type of spending growth associated with an economic recession."
Peter Cardillo, Chief Market Economist at Spartan Capital Securities, said: "It is clear we will see rate cuts. I think whether it will be a 25 basis point cut or a 50 basis point cut remains to be seen, which will depend entirely on August’s employment data. I expect three rate cuts, possibly a 50 basis point cut in September, depending on employment data. If this does not occur, there may be a 25 basis point cut in September and a 50 basis point cut in December."
After the inflation data was released, the dollar index swiftly rose to a 10-day high. Last week, the dollar index increased by 1%, marking its best weekly performance since early April.
However, the dollar index fell by 2.6% in August, recording its worst monthly performance since November last year.
The dollar also benefited from month-end flows, having previously been sold off after Federal Reserve Chairman Powell gave the clearest signal yet at the Jackson Hole meeting of a rate cut in September.
Another economic report showed that the University of Michigan’s consumer sentiment index rose to 67.9 in August from an eight-month low of 66.4 in July, ending four consecutive months of decline. The survey also showed that U.S. consumers expect inflation to continue slowing over the next year, with the one-year inflation expectation in August falling to its lowest level since late 2020.
U.S. Treasury yields rose last Friday, with the 10-year Treasury yield set to end two weeks of decline, after economic data boosted expectations that the Federal Reserve might opt for a small rate cut at the September meeting.
Brian Jacobsen, Chief Economist at Annex Wealth Management, said: "Income and spending were slightly better than expected, and inflation met expectations. This can reinforce the view that the Federal Reserve has achieved a soft landing.”
Thomas Urano, Co-Chief Investment Officer at Sage Advisory, said: "The market's focus is shifting more towards employment and the labor market rather than inflation. It feels very certain that inflation is moving in the right direction. As long as inflation continues to move in this direction, the focus will remain on economic growth and the job market."
The 10-year U.S. Treasury yield rose by 3.8 basis points to 3.905% last Friday, marking the fifth consecutive day of gains and the first weekly rise in three weeks. However, this yield is still on track for its fourth consecutive monthly decline.
Investors also need to continue monitoring news related to geopolitical situations.
On September 1 local time, the Lebanese Ministry of Public Health reported that the southern village of Aital-Shaab was attacked by an Israeli drone, injuring four people.
On the afternoon of September 1 local time, the northern Israeli town of Kfar Yuval was hit by an anti-tank rocket, reportedly originating from Lebanon. The rocket did not trigger an air raid alarm as it entered Israeli airspace, injuring at least three Israelis. The Israel Defense Forces stated that it carried out a remote strike on the rocket launch area following the attack.
Mass protests broke out in Israel on September 1, with many people taking to the streets to call for the Israeli government to reach a ceasefire agreement with Hamas to facilitate the release of Israelis detained in the Gaza Strip.
In areas near the Ministry of Defense in Tel Aviv and the Knesset building in Jerusalem, reporters saw demonstrators chanting slogans calling for a ceasefire, holding banners, and photos of detainees.
According to Israel's New News website on the evening of the 1st, a total of 700,000 people participated in the protests nationwide that day, including 550,000 in Tel Aviv. Israeli media reported that on the evening of the 1st, thousands of protesters set fires on a major road in Tel Aviv, leading to a temporary closure of the road. Police issued a statement saying they had dispersed some protesters, with at least 12 people arrested nationwide during the demonstrations.
On September 1 local time, Qatar’s Ministry of Foreign Affairs issued a statement strongly condemning the continued military operations by Israeli forces in the West Bank, including Jenin, which have caused casualties. The statement said that the Israeli actions are a blatant violation of international law, and Qatar urged the international community to provide necessary protection to the Palestinian people, hold Israel accountable for war crimes committed on Palestinian territory, and pressure Israel to comply with international humanitarian law. The statement reiterated Qatar's firm stance on the Palestinian issue, supporting the legitimate rights of the Palestinian people and the establishment of an independent Palestinian state with East Jerusalem as its capital.
It should be noted that due to the U.S. Labor Day holiday, the U.S. stock market will be closed on Monday. Trading for CME's precious metals and U.S. crude oil futures contracts will end early at 2:30 AM Beijing time on the 3rd.
As of 07:07 Beijing time, spot gold was quoted at $2,502.85 per ounce.
