On Monday (March 15) in the sub-session, the dollar index was basically stable, now trading around 91.70; Spot gold retreated from the day’s highs to trade at around $1,726 an ounce, while early in the Asian session bullion approached $1,735 an ounce. This week, many central banks will release interest rate decisions, among which the most key will be the Federal Reserve interest rate decision and Fed Chairman Colin Powell’s press conference. On the economic front, the U.S. will release key economic data, including retail sales. On the geopolitical front, a high-level meeting between the U.S. and China this week will be closely watched by investors, and a more upbeat message from the meeting could increase risk appetite in the market, which would hurt gold. In addition, the situation in Myanmar has worsened, with 126 people killed in protests so far.
Gold edged higher on Friday as a slight retreat in the dollar and weakness in equities offset the pressure from rising Treasury yields. Spot gold settled at $1726.96 an ounce, up $4.51, or 0.26 percent. According to Economies.com, gold found solid support at $1,700.00 an ounce on Friday and rebounded significantly. If gold breaks above $1,735.00 / oz, this will propel gold to the next target of $1,765.00 / oz. But a pullback from the $1,724.00 area would put pressure on gold and put it back on the bearish track, with the first target at $1692.00.
The bearish sentiment in the gold market appears to be changing, with prices staying above $1,700 an ounce, according to Kitco News’ gold survey released on Friday, with analysts seeing at least a short-term bottom in the market.
Sixteen professional analysts responded to the survey last week. A total of six analysts (38 per cent) expect gold to rise this week. Meanwhile, bears and neutrals are evenly split, with five analysts (31%) predicting lower prices this week and just as many predicting sideways moves.
Many analysts say the latest US fiscal stimulus spending will continue to provide long-term support for gold. Others, however, point out that the latest spending bill will boost growth expectations and push stocks and bond yields higher.
“It’s disappointing that gold hasn’t moved higher after the $1.9 trillion stimulus package was passed,” said Kevin Grady, president of Phoenix Futures and Options LLC. If gold can’t build on that, I don’t know what will push it higher.”
Adrian Day, president of Adrian Day Asset Management, said he was bearish on gold this week. However, he added that he believed gold prices were approaching cyclical lows.
Adam Button, director of currency strategy at ForexLive.com, said he likes gold because it can hold the support level around $1,680. “Markets are learning to live with higher rates and the message from the Fed this week will be that they will be very patient,” he said.
The Fed’s decision comes in heavy
The US Federal Open Market Committee (FOMC) will announce its decision on interest rates at 02:00 Hong Kong time on Thursday. Fed Chairman Colin Powell will hold a press conference at 02:30 Hong Kong time on Thursday.
The recent rise in U.S. bond yields has rattled markets as investors worry the U.S. economy is overheating. The Fed appears to be taking yields in unflinching terms. Investors will try to gauge its latest views when the central bank holds a policy meeting this week.
Barclays predicts that the Fed is likely to continue to use rhetoric or guidance to convince equity investors that current market expectations for when and by how much the central bank will raise rates are ‘too aggressive.’ The Fed is also likely to discuss the relationship between short-term and long-term inflation.
On Jan. 27, the Federal Reserve said after a two-day policy meeting that it would keep its benchmark short-term borrowing rate near zero and its asset purchase program, in which the central bank buys at least $120 billion a month, was in line with market expectations. “The pace of recovery in economic activity and employment has slowed in recent months, with weakness concentrated in sectors most affected by the outbreak,” the FOMC wrote in its post-meeting statement. The statement reiterated that COVID-19 “is causing enormous human and economic hardship in the United States and around the world.”
At a news conference after the Fed’s Jan. 27 meeting, Powell said the Fed will maintain its accommodative monetary policy until both goals are achieved. The logical scenario for the Fed would be a high level of easing. Powell said that anchoring inflation expectations is important and that the U.S. economy may still be “some time” away from making substantial progress. He also said it was not the time to discuss a date for scaling back asset purchases.
Yields on 10-year US Treasury notes climbed above 1.6 per cent on Friday. The correlation between current yields and gold is that as yields rise, gold prices fall. So far, the Fed has largely ignored the issue, which is why all eyes will be on Fed Chairman Colin Powell this week when he holds a press conference following the rate announcement.
Daniel Pavilonis, senior commodities broker at RJO Futures, noted that even the European Central Bank said last Thursday it was worried about inflation and money printing. Pavilonis said similar comments from the Fed would be positive for gold and the fact that yields are rising could be a sign that the Fed is losing control.
Bart Melek, global head of strategy at TD Securities, said Powell was unlikely to make any significant new comments on the yield curve. Powell will assure us that it is too early to talk about raising interest rates. “Last time, when yields rose sharply and risk appetite wasn’t affected, he was pretty equivocal,” he says.
Kevin Grady, president of Phoenix Futures and Options LLC, added that Powell may try to “talk yields down.”
Markets will also get an update to the Fed’s quarterly forecasts. Economists at ING expect U.S. GDP estimates to be revised upwards for 2021.
“There will also be a lot of interest in the dot plot of the federal funds rate,” the bank’s economists said. Will the median of the Fed’s 2023 chart shift to a quarter-point rate hike? Probably not, but if it did, the dollar would probably appreciate. But the largely unchanged FOMC statement and Mr Powell’s reiteration at his press conference that the Fed has a long way to go before tapering its stimulus should prevent the dollar from going too far.”
“Data of terror” has arrived
US retail sales data for February will be released at 20:30 Hong Kong time on Tuesday. Retail sales are closely watched by investors because they are a direct guide to consumption and an important guide to the economy.
U.S. retail sales are expected to fall 0.5 percent in February after rising 5.3 percent the previous month, according to media surveys.
The survey also showed core U.S. retail sales were expected to rise 0.1 percent in February after rising 5.9 percent the previous month.
U.S. retail sales data are known as the “horror data” because they usually have a big impact on financial markets and are therefore likely to have an impact on assets such as the dollar and gold.
Analysts said the dollar could take a hit if U.S. retail sales data were weaker than expected, and gold could rebound.
In addition to retail sales, there will be a slew of other new economic data to watch in the US this week. The New York Fed manufacturing index will be released on Monday, followed by industrial production data on Tuesday. U.S. housing starts and building permits are due on Wednesday, followed by the Philadelphia Fed manufacturing index and initial jobless claims on Thursday.
China and the US will hold a high-level meeting
On March 19, U.S. Secretary of State Antony Blinken and National Security Adviser Jake Sullivan will meet with Yang Jiechi, China’s Politburo member in charge of diplomacy, and Wang Yi, China’s State Councilor and Foreign Minister, in Anchorage, Alaska. It will be the first face-to-face meeting between the two countries during the Biden administration.
Local time on March 10, the U.S. state department said in a statement posted on its website, the us secretary of state, Lincoln and national security adviser, Sullivan on March 18, anchorage, Alaska in the United States and of the Political Bureau of the CPC Central Committee and the central Yang, director of the office of foreign affairs committee and the state councilor and foreign minister wang yi held a meeting, and will talk with China on a series of problems.
According to the Chinese foreign ministry website on March 11, a foreign ministry spokesman announced Zhao Lijian: at the invitation of the United States, member of the Political Bureau of the CPC Central Committee, central Yang, director of the office of foreign affairs committee, state councilor and foreign minister wang yi will work with the secretary of state, Lincoln, President of the United States national security affairs assistant Sullivan on March 18 to 19 held in anchorage, high-level strategic dialogue between China and America.
Speaking at a hearing of the House Foreign Affairs Committee March 10, Blinken said the meeting would provide an opportunity to present U.S. concerns to Beijing in a “candid” manner. “There are many issues that we intend to raise and will raise,” he said. He said the talks would also explore whether there were avenues for cooperation with Beijing.
In response to relevant remarks made by US Secretary of State Antony Blinken, Zhao Lijian pointed out that at the invitation of the US side, China and the US will hold a high-level strategic dialogue in the near future. China’s position on China-US relations is clear. We urge the US side to view China and China-US relations in an objective and rational way, abandon the Cold War and zero-sum mentality, and respect China’s sovereignty, security and development interests. We should stop interfering in China’s internal affairs, follow the spirit of the phone call between the two heads of state, focus on cooperation, manage differences and bring China-US relations back to the right track of sound and steady development.
State Department spokesman Ned Price told reporters March 11 that this would be a “difficult” conversation. “We will be forthright in explaining how Beijing’s actions and behavior challenge the security, prosperity and values of not only the United States, but also our partners and Allies,” he said. “In terms of this bilateral engagement, we expect Beijing to show that it is serious about its oft-stated desire to change the tone of the bilateral relationship,” Mr Price said.
White House press secretary Jen Psaki said U.S. officials would address the issue of ‘genocide’ by China’s Muslim Uighur minority during the talks. “The U.S. position, of course, is that what is happening is genocide, and we will look for opportunities to work with other partners to put more pressure on China,” Psaki said. That will be a topic of discussion this week.”
Mr Price said Washington, in consultation with its Allies, had made progress in its goal of approaching China from a strong position. To this end, Blinken addressed a group of foreign ministers representing a wide range of partners and Allies. Mr. Blinken attended a meeting of the European Union Foreign Affairs Council last month and will make his first diplomatic visit to Japan and South Korea next week.
Price noted that the Biden administration has also re-engaged in the Paris climate agreement, sought to reaffirm core democratic values and tried to put its house in order at home, including early steps to strengthen its supply chain — all steps aimed at undermining Chinese assertiveness.
“We have been speaking up for our Allies and condemning China’s affront to many of these shared and even universal values, whether it’s in Xinjiang, whether it’s in Hong Kong, whether it’s in Taiwan, or anywhere in the world,” Price said. He said those issues are likely to be the subject of talks in Alaska. He added: “There are a lot of differences. We certainly don’t hold back.” At the same time, the Biden administration recognizes potential areas of cooperation in the “multifaceted” U.S. -China relationship, including climate change, provided Beijing matches its words with its actions, Price said.
Speaking at a White House press conference on March 12, Sullivan said he did not expect the first phase of the trade deal to be the main story this week. Mr. Sullivan said U.S. officials will raise concerns about China’s actions in Hong Kong and security risks involving technology when they meet with high-level diplomats in Beijing this week. Mr Sullivan said US officials would also address issues raised by Asian Allies on Friday about China’s “coercion of Australia” and “aggressive actions along the India-China border”.
Under former President Donald Trump, relations between the United States and China sank to their lowest level in decades, with the two countries trading sanctions and tariffs, expelling journalists and closing consulates.