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On October 23, as the sell-off in tech stocks intensified, investors flocked to traditional safe-haven assets, including the yen, Japanese government bonds, and US Treasuries, pushing the yen to its highest level in over a month. After trading within a narrow range for several weeks, the yen broke out of this range in the past 24 hours, currently reaching its highest level since September 18 (the day the Bank of Japan raised interest rates). During Fridays Tokyo trading session, the yen rose as much as 0.4% against the dollar, hitting 156.08; previously, it had already recorded a 0.9% gain on Thursday. Asian stocks followed Wall Street lower, influenced by continued investor withdrawals from tech stocks. The price of Japans benchmark 10-year government bond surged, with yields falling 10 basis points; US Treasuries largely maintained Thursdays gains. "The yen is more favored than the dollar as a safe-haven asset," said Carol Kong, a strategist at Commonwealth Bank of Australia. "This weeks earnings reports from major U.S. tech companies have raised questions about the AI-driven U.S. growth narrative." She added that the yen could strengthen further against the dollar if the unwinding of tech stock positions intensifies.The Hang Seng Index and the Hang Seng Tech Index both turned negative, after the Tech Index had previously risen by more than 2%.October 23 – Japans core consumer inflation exceeded the central banks 2% target for the first time in nine months in September, indicating expanding price pressures and reinforcing the case for a recent interest rate hike. These figures highlight that the protracted Middle East conflict pushing up fuel costs, a weaker yen leading to higher import prices, and strong AI demand are eroding the effectiveness of government fuel subsidies. Masato Koike, senior economist at Sompo Institute Plus, stated that core inflation is expected to accelerate due to rising energy costs caused by the Middle East conflict and its subsequent second-round effects. However, since prices are not accelerating sharply, a second rate hike in October is almost unnecessary, and the next rate hike by the Bank of Japan is expected in December. Marcel Tiliant, head of Asia Pacific at Capital Economics, expects the Bank of Japan to maintain its policy unchanged next week but will hint at continued concerns about upside risks to inflation. There is little evidence that the tightening so far has slowed the economy, and risks are tilting towards a peak policy rate higher than Capital Economics 2% forecast.Gold prices weakened on Friday, on track for their biggest weekly drop in over four months. Soaring oil prices and strong U.S. economic data fueled expectations that the Federal Reserve will maintain high interest rates for an extended period. High energy prices reinforce these expectations, increasing the opportunity cost of holding non-yielding gold. Last week, U.S. initial jobless claims fell to their lowest level in nearly 57 years, indicating a modest recovery in job growth in October. Market focus has now shifted to the Federal Reserves policy meeting on October 27-28 and next weeks PCE data release. The PCE data is a key indicator closely watched by the Federal Reserve.The yield on Japans two-year government bonds fell 6 basis points to 1.840%.

Gold Hits 10-Month Low Due to Fed/One-Two Dollar's Punch

Haiden Holmes

Jul 07, 2022 11:20


Is gold safe at $1,700? Given how far south the yellow metal has traveled in only two days, the question is legitimate.


August gold futures on the New York Comex concluded Wednesday's trading at $1,736.0 per ounce, down $27.40, or 1.6%. The day's minimum value was $1,730.95.


Gold's most recent nadir provides a $30 cushion between the next horror scenario and longs in the game — $1,600 area.


Sunil Kumar Dixit, chief technical strategist at skcharts.com, warned that if gold fails to achieve $1,768 it will continue under pressure and aim for $1,722-$1,698.


The dollar's rebound and the Federal Reserve's hawkish attitude have virtually pushed gold to September 2021 lows.


Wednesday was the first occasion since December 2002 when the Dollar Index, which measures the dollar against six major currencies, topped 107 points. Since November of last year, the dollar has climbed steadily on projections of quick rate hikes by the Federal Reserve, which have barely started to materialize.


Gold's malaise also coincides with the Fed's relentless rate hike talk. The Fed's vow to tame the inflation beast by increasing the Fed funds rate before the end of the year has damaged bullion prices for weeks. However, central bank authorities have shown no hesitation to pursue this purpose.


According to minutes from a central bank policy meeting held last month, the Fed considers there is a serious danger of high inflation getting entrenched in the US economy and that modest interest rate hikes are the only way to balance runaway prices with growth.


During the outbreak, the Fed held interest rates between zero and 0.25 percent for two years until boosting them in March of this year. Since then, rates have hit between 1.5 and 1.75 percent. The central bank has declared that it will continue to hike interest rates until inflation, which has hit 40-year highs of more than 8 percent yearly, returns to its objective rate of 2 percent annually.


This month, the Fed is expected to continue with another quarter-point rate rise.


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