2. Points To Be Discussed Today:
• RBA Says Inflation Too Low To Raise Rates
• Fed Unveils Tapering Plan, Restates
Inflation Is ‘Transitory’
• Weekly Outlook
• Gold Bugs Ignite, Subdued Treasury Yields
In Play
• Gold Up, Boosted By Retreating Dollar
3. Gold Futures & Central Banks With
Gold Bulls
• Gold futures finished nearly 2% higher last
week, boosted by dovish tones from three
prominent central banks – the Reserve Bank
of Australia (RBA), the U.S. Federal Reserve
and the Bank of England (BoE).
• The moves by these central banks seemingly
assures gold bulls that interest rates won’t be
moving higher for months, green lighting the
possibility of higher near-term prices.
4. RBA Says Inflation Too Low To Raise
Rates
• Last Tuesday the Reserve Bank of Australia (RBA)
dampened investor hopes for a hawkish pivot,
kicking off a big week for monetary policy that
included decisions from the Federal Reserve and
Bank of England.
• The RBA stressed that inflation was still too low,
although it also omitted its previous projection
that rates were unlikely to rise until 2024 and
dropped a key target for the April 2024
government bond.
5. Fed Unveils Tapering Plan, Restates
Inflation Is ‘Transitory’
• The Federal Reserve threw its weight back
behind the drive for a full U.S. jobs recovery
last Wednesday, restating its belief that
current high inflation is “expected to be
transitory” and, despite risks to that view,
arguing that price pressures will ease and pave
the way for stronger employment and
economic growth in the months to come.
6. Fed Unveils Tapering Plan, Restates
Inflation Is ‘Transitory’ - I
• Even as the U.S. central bank announced it was
tucking away one of its main pandemic-fighting
tools, by trimming its massive bond-buying
program beginning this month.
• Its latest policy statement and Fed Chair Jerome
Powell’s remarks in a news conference signaled it
would stay patient – and wait for more job
growth – before raising interest rates.
7. Bank Of England Puts Rate Hike On
Hold
• The BoE kept rates on hold on Thursday, wrong-
footing investors who had been convinced that it
was about to become the first of the world’s big
central banks to raise borrowing costs amid the
COVID-19 pandemic.
• “The Bank of England was obviously more dovish
than we and the market had expected,” analysts
of BofA Securities said in a note published on
Friday.
8. Bank Of England Puts Rate Hike On
Hold - I
• “As we struggle with the new narrative, and
shuffle our first expected hike to Feb –
although the Dec versus Feb call is a tough
one .
• The overarching message is that regardless of
when these hikes come, the market seems to
be pricing too many.”
9. Weekly Outlook
• The bullish reaction to Friday’s strong U.S. Non-
Farm Payrolls report shows investors believe one
solid report is not going to change what Federal
Reserve Chair Jerome Powell signaled in his post-
policy meeting press conference.
• Nonetheless, with the Fed not scheduled to meet
until December, the near-term focus will be on
U.S. economic data and Fed member speeches.
10. Weekly Outlook - I
• Nonetheless, with the Fed not scheduled to meet
until December, the near-term focus will be on
U.S. economic data and Fed member speeches.
• This week, Fed Chair Powell will give speeches on
Monday and Tuesday. Traders are hoping he’ll
reveal more about the timing of the first post-
pandemic rate hike. Although he’s not likely to
waiver much from last week’s dovish tone.
11. Weekly Outlook - II
• The economic reports include the monthly
Producer Price Index (PPI) and the monthly
Consumer Price Index (CPI).
• PPI is expected to continue to climb with
traders pricing in a reading of 0.6%, up from
0.5%. CPI is expected to rise 0.5%, up from
0.4%. Core CPI is expected to show a 0.4%
increase, up from 0.2%.
12. Weekly Outlook - III
• Gold traders should keep an eye on the rate
hike timetable for the RBA, Fed and BoE.
• Right now it shows the RBA won’t raise rates
until 2024, the Fed until June or July 2022 and
the BoE in perhaps December 2021.
• This give gold bulls enough time to enjoy a
strong near-term rally with $1839.00 a key
upside target this week. It’s also the trigger
point for an acceleration to the upside.
13. Gold Bugs Ignite, Subdued Treasury
Yields In Play
• Despite promising jobs data, the precious metal is
benefitting from a labor participation rate below
62%; an overheated labor market would be about
1% higher.
• “There is no doubt” the U.S. labor market is tight,
Kansas City Fed President Esther George said on
Friday. She added that she will be watching
closely how wage pressures and inflation
expectations manifest themselves as she gauges
the economy’s progress towards full
employment.
14. Gold Bugs Ignite, Subdued Treasury
Yields In Play - I
• After the strong jobs’ reports, the 10-year
Treasury yield dropped below 1.46 percent,
lowering the opportunity cost of holding gold.
• The Fed’s unhurried approach to raising interest
rates and subdued Treasury yields seem to be
supporting gold bulls.
• Although the labor market report was strong, it
won’t change what Federal Reserve Chair Jerome
Powell said earlier this week, that inflation would
be “transitory” and not call for fast interest rate
rises.
15. Gold Bugs Ignite, Subdued Treasury
Yields In Play - II
• In a subsequent statement on Friday, the
European Central Bank policymakers stated that
inflation would likely ease next year, suggesting
market expectations of an October 2022 interest
rate hike will not be met.
• On Monday, the dollar index was stable but
retreated 0.4% from its more than the one-year
peak hit on Friday, which made bullion more
appealing to buyers holding other currencies by
lowering its cost.
16. Gold Bugs Ignite, Subdued Treasury
Yields In Play - III
• There was a $1 trillion bill passed by the U.S.
Congress for roads, bridges, and airports.
• Since almost zero interest rates have reduced
the opportunity cost of holding gold, the price
of gold has surged over the last two years, as
easy monetary policy spurred economic
growth during the Covid-19 pandemic.
17. Gold Up, Boosted By Retreating Dollar
• Gold was up on Monday morning in Asia, hitting a two-
month high.
• A dollar on the retreat also gave the yellow metal a boost.
• Gold futures edged up 0.18% to $1,820.10 by 11:36 PM ET
(3:36 AM GMT). They remained above the $1,800-mark
after hitting their highest level since Sep. 7 earlier in the
session. The dollar, which usually moves inversely to gold,
inched down on Monday.
• Investors digested Friday’s U.S. job report, which showed
that non-farm payrolls increased by a better-than-expected
531,000.
• The unemployment rate fell to 4.6%, in October.
18. Gold Up, Boosted By Retreating Dollar - I
• “There is no question” that the U.S. labor market
is tight, U.S. Federal Reserve Bank of Kansas City
Esther George said on Friday. George will also be
looking carefully at how wage pressures and
inflation expectations unfold as she tries to gauge
how close the economy is to the Fed’s goal of full
employment, she added.
• On the same day, the U.S. Congress passed a $1
trillion infrastructure bill to repair the nation’s
airports, roads, and bridges.
19. Gold Up, Boosted By Retreating Dollar - II
• In Asia Pacific, Chinese trade data released on
Sunday showed that exports grew 27.1% year-on-
year in October.
• Imports grew 20.6% year-on-year and the trade
balance stood at $84.54 billion.
• Meanwhile, the Bank of Japan sees the need for
ultra-easy monetary policy as inflation is rising
only modestly and wage growth remains feeble,
it said on Monday in a summary of opinions from
its October meeting.
