Impact of Dollar and Treasury Yield Increase on Gold
On Wednesday, the dollar index rose by 0.2%, and the yield on the 10-year U.S. Treasury also increased, putting pressure on gold. Everett Millman, Chief Market Analyst at Gainesville Coins, stated, "If economic data shows that concerns about a recession are justified, we may see adjustments... Gold could reach new historical highs in the coming months." According to the CME FedWatch Tool, last week's weak employment report led traders to expect a rate cut of nearly 105 basis points by the end of the year, with a 100% probability of a rate cut in September.
Geopolitical Tensions Impacting the Market
On Tuesday, the leader of Hezbollah promised a "strong and effective" response to Israel's killing of its military commander last week, regardless of the consequences. Bart Melek, Head of Commodity Strategy at TD Securities, stated, "The market will look for confirmation of economic slowdown from Thursday's unemployment claims report, especially in terms of employment." Meanwhile, official data on Wednesday showed that the People's Bank of China did not increase its gold reserves for the third consecutive month in July, slightly dampening the morale of gold bulls.
Performance of U.S. Stocks and Gold Market
U.S. stocks closed lower on Wednesday, with tech stocks leading the decline, causing the Nasdaq to fall over 1%, raising concerns about cash holdings and resulting in another sell-off in gold. Major stock indices initially rose with a surge in tech stocks but began to lose momentum in the afternoon. Investors remained nervous after recent sharp declines in global stock markets. All three major U.S. stock indices closed lower, with the declines accelerating before the close. The S&P 500 technology sector fell 1.4%, the biggest drag on the benchmark index. Peter Tuz, President of Chase Investment Counsel, said, "There are many things to worry about in the next eight weeks or so, so I expect more volatility. I wouldn't be surprised to see another small sell-off after a few days of gains." Investors have been worried about a possible U.S. recession and weak earnings forecasts from some major U.S. companies. The Dow Jones Industrial Average closed down 234.21 points, or 0.6%, at 38,763.45 points; the S&P 500 fell 40.53 points, or 0.77%, at 5,199.5 points; and the Nasdaq dropped 171.05 points, or 1.05%, at 16,195.81 points. FX Street Senior Analyst Joseph Trevisani said, "This dramatic market volatility makes for good material but doesn't necessarily indicate a larger economic disaster, which I don't expect."
Impact of Fed Rate Cut Expectations and Treasury Yields
After the unemployment rate unexpectedly jumped last Friday, traders increased their bets on a Fed rate cut on Monday, at one point expecting more than 125 basis points of rate cuts this year. On Wednesday, traders expected a 100 basis point rate cut this year, with a 62% probability of a 50 basis point cut in September, down from Monday's near certainty. Stephen Miran, Senior Strategist at Hudson Bay Capital, said, "I think you'll start to hear people say, 'Hey, let's get a more detailed understanding of the labor market,' and then really conclude that the U.S. situation isn't collapsing rapidly." U.S. Treasury yields rose on Wednesday after the Treasury Department's auction of $42 billion in 10-year notes saw weak demand and as risk appetite improved, prompting companies to scramble to issue bonds. This week's main focus is on supply, with traders waiting for new economic data to look for further clues about the strength of the U.S. economy. The awarded yield on the 10-year Treasury auction was 3.96%, three basis points higher than the yield on similar-maturity Treasuries in the secondary market before the auction. The bid-to-cover ratio was 2.32, the lowest since December 2022. "Investors are just unwilling to buy 10-year Treasuries with yields below 4%," said Vail Hartman, U.S. rate strategist at BMO Capital Markets in New York. "This suggests that this trend could continue for a while before meaningful dip-buying reappears." A large number of corporate bond issuances also pushed up yields. Michael Lorizio, Senior Fixed Income Trader at Manulife Investment Management in Boston, said, "Many issuers paused issuances on Monday, and possibly even yesterday, just to ensure more clarity on how risk assets would be received, and today these issuers all entered the market to issue bonds."
Importance of Future Economic Data and Fed Meetings
The next significant U.S. economic data is the July Consumer Price Index (CPI), to be released on August 14. Fed Chairman Powell's speech at the Fed's Jackson Hole Economic Policy Symposium on August 22-24 could also provide new clues about the path of rate cuts. This trading day, focus on changes in U.S. initial jobless claims and watch for speeches from Fed officials. Investors still need to pay attention to geopolitical news. The White House said a ceasefire agreement in the Gaza Strip is nearing, but Iran may reassess whether to launch a military attack on Israel. On August 7 local time, White House National Security Council spokesman John Kirby said that despite growing concerns about a regional war following the assassination of Hamas leader, Israel and Hamas are still close to reaching a ceasefire agreement. According to U.S. media Politico, U.S. officials said Iran might reconsider launching a multi-pronged attack on Israel. The Biden administration has been working through diplomatic channels in recent days, sending messages to Tehran through various mediums, suggesting that if the explosion that killed Haniyeh did not kill any Iranian citizens, Iran should reassess its plans for a military attack on Israel. U.S. officials said they do expect some response from Iran to Haniyeh's death, but Tehran seems to have adjusted its stance, and the U.S. does not believe Iran will immediately attack Israel. Additionally, the Russian Ministry of Defense reported on the 7th that the Russian military struck an oil refinery in Ukraine, which supplies fuel for Ukrainian military equipment; the Russian military also struck a temporary base of foreign mercenaries and several Ukrainian military units, as well as tanks and armored vehicles. Russian air defense systems intercepted 11 HIMARS rockets and 87 drones. On the same day, the General Staff of the Ukrainian Armed Forces reported that Russian military aviation activities near the border area of Sumy Oblast increased, with about 30 guided bombs dropped in the area that day. In directions such as Kharkiv, Toretsk, and Pokrovsk, Ukrainian forces repelled dozens of Russian attacks, with some battles still ongoing.
As of 07:50 Beijing time, spot gold was reported at $2385.43 per ounce.
