Source: Golden Ten Data

Two Federal Reserve officials who have the right to vote on monetary policy decisions this year said they still expect the Fed to cut interest rates three times in 2024, even though they are in no hurry to start cutting interest rates.

San Francisco Federal Reserve Chairman Daly said that the three interest rate cuts determined by Fed officials last month were reasonable expectations, but there is currently no urgency to adjust the policy. “I think this is a very reasonable basic scenario,” she said at an event in Nevada on Tuesday. Cutting interest rates three times is a prediction not a promise. As of now, economic growth is strong, so there is really no urgency to adjust interest rates. If inflation lasts longer than we expected, we must be prepared and may consider cutting interest rates less.”

Cleveland Federal Reserve Chairman Mester told reporters after another event on Tuesday that she still thinks it may be appropriate to cut interest rates three times this year, but “it remains to be seen” whether the number of interest rate cuts needs to be reduced. Meester said earlier that before starting to cut interest rates, she would like to see more evidence that inflation is falling.

Meester said she wouldn't prejudge the FOMC meeting, but wouldn't rule out a rate cut in June. “It really depends on what's happening in the economy and how it evolves. Does the early inflation data we have obtained so far this year indicate that the anti-inflation process is stalling, or are these figures like taking a detour on the road and we are back on a downward path?”

Meester said that the higher-than-expected inflation data at the beginning of the year mainly only confirmed the instability of the inflation reduction process. She said she still believes that price growth will continue to cool down towards the Fed's 2% target, but at a slower pace than last year.

At the March 19-20 policy meeting, Federal Reserve officials generally agreed that it would be appropriate to start cutting interest rates sometime in 2024. According to the bitmap released after the meeting, the median forecast of participants barely estimates that interest rates will be cut three times this year. Opinions within the Federal Reserve are divided. Currently, nine officials believe that interest rates will be cut twice or less this year. This comes after disappointing inflation data was released in early 2024.

The Federal Reserve's current target interest rate range is 5.25% to 5.5%. The futures market shows that investors think the chances of cutting interest rates and not cutting interest rates in June are roughly five or five. They also currently expect that the Federal Reserve will cut interest rates by about 70 basis points in 2024, which indicates that they think the number of interest rate cuts may be less than three times.

Gold prices continue to break record highs

Thanks to the speeches of Daly and Mester, spot gold broke through 2,280 US dollars/ounce at the end of the US market on Tuesday, and COMEX gold futures surpassed 2,300 US dollars/ounce, all of which reached record highs. At the same time, geopolitical risks also enhanced the appeal of gold. Previously, stable US job vacancy reports and steady factory data stimulated market speculation that the Federal Reserve might need to maintain higher interest rates for a longer period of time, putting pressure on the price of gold in the US market. Spot silver rose above $26 per ounce, hitting a new high of nearly a year. COMEX futures surged 4% during the day.

In early trading on Wednesday, spot gold continued its overnight gains, breaking the record high to 2,288 US dollars/ounce.

Daniel Ghali, commodity strategist at TD Securities, said, “We are seeing some safe-haven demand flowing into gold. This is related to Israel's attack on the Iranian embassy in Syria.” Ghali added that the recent rise in gold prices may also be related to short recovery from family financial offices and proprietary trading institutions.

Saxo Bank's Ole Hansen said that after the gold price broke through $2,200, speculators who followed the momentum continued their already high long positions. Independent analyst Ross Norman said:

“The reason why the rise in gold prices is so unusual is that the price of gold is still rising despite traditional adverse factors such as a stronger dollar, rising US Treasury yields, and 'higher and longer' US interest rates.”

Since hitting this year's low on February 13, a series of positive factors have boosted the price of gold by 13%. Gold's rise was supported by prospects for major central banks to ease monetary policy, as well as heightened tension in the Middle East and Ukraine. Central banks are also buying gold in droves. After PCE data was released last Friday, Federal Reserve Chairman Powell said that the data was “basically in line with our expectations” and was not in a hurry to cut interest rates. Later this week, investors will have a further opportunity to evaluate the US economic outlook and Federal Reserve policy. The number of monthly non-farm payrolls is expected to increase by at least 200,000 for the fourth month in a row.

Warren Patterson (Warren Patterson), head of commodity strategy at Dutch International Group, said: “PCE data, and Powell's remarks in particular, have further boosted gold, and the market is increasingly convinced that the Federal Reserve will start cutting interest rates in June. However, we don't need much catalyst to see gold prices fall in the short term; this may be a better-than-expected US employment report.”

Tai Wong, an independent metals trader in New York, also said that although the gold market is still in a “highly bullish mood,” the gold market may need to consolidate as the market's views on the Fed's policies shift to more hawkish.

Notably, the rise in gold prices has yet to resonate with investors who prefer to invest in gold through exchange-traded funds (ETFs). According to Bloomberg statistics, global gold ETF holdings declined by more than 100 tons in the first quarter, reaching their lowest level since 2019 in mid-March, before rising slightly thereafter.

Editor/jayden