In early Asian trading on Wednesday (May 22), spot gold fluctuated in a narrow range and is currently trading at 2422.59 US dollars/ounce. While the US dollar rose, the price of gold fell slightly on Tuesday, but remained near the record high set on the previous trading day, remaining above 2,400 US dollars, closing at 2420.73 US dollars/ounce, supported by risk aversion and the prospect of the US easing interest rate policy this year.

Nikos Kavalis, managing director of Metals Focus, said: “Gold hit a record high of $2449.89 on Monday, and the overall situation has not really changed (since March)... it is still a very attractive backdrop for gold in the global macroeconomic and geopolitical environment.”

As the Federal Reserve tries to achieve a soft landing, some investors are concerned about the rapid rise in US government debt.

Recent data shows that US inflation has returned to a downward trend, but several Fed policymakers are still wary of cutting interest rates too early, but the need to raise interest rates is ruled out.

Interest rate futures show that the market expects the probability that the Fed will cut interest rates in September to once again rise to around 64%, compared to around 60% the day before.

The Chinese government has already reserved a large amount of gold in the first quarter of 2024.

According to data from the World Gold Council (WGC), gold exchange-traded funds (ETFs) supported by global physical gold attracted net inflows of US$1 billion last week, the largest weekly inflow since October 2023.

Investors will keep a close eye on the minutes of the Federal Reserve's last policy meeting to be released on Wednesday.

Federal Reserve officials call for patience to wait for the first rate cut to ensure that inflation is on a downward trajectory

Federal Reserve policymakers said on Tuesday that the current prudent approach is to wait a few more months before starting to cut interest rates to ensure that inflation is actually on track to return to the 2% target.

In a speech prepared for the Peterson Institute for International Economics, Federal Reserve Governor Waller said, “With the labor market not clearly weakening, I need to see good inflation data for several more months before I can confidently support easing monetary policy positions.” However, he also dispelled speculations that another rate hike might be needed to weaken demand enough to further ease price pressure.He called the latest inflation data “encouraging” and that the possibility of interest rate hikes was “very low.”

“We just don't want to fall off a cliff. This is the key point,” Waller said. “We're not seeing any signs right now that staying at this level for three to four months would cause the economy to fall off a cliff.”

Since July of last year, the Federal Reserve has kept its target range of 5.25% to 5.50% unchanged at 5.25% to 5.50% for its indicator policy interest rate. Given that inflation readings were higher than expected for three consecutive months in January-March, the Federal Reserve only cautiously welcomed the recent encouraging signs of loosening in the labor market and said it hoped to make further progress in pushing inflation down to 2%.

Evercore ISI Vice Chairman Krishna Guha said, “We believe this confirms Waller's openness to cutting interest rates in September, provided there is a more clear downward trend in inflation in the next few months.”

Waller's statement also seems to have strengthened the market's confidence in the Fed's interest rate cut. Traders have strengthened their expectations of cutting interest rates for the first time in September and a second time at the last policy meeting of this year in December.

Atlanta Federal Reserve Chairman Bostic delivered a speech with a tone similar to Waller's on another occasion.He pointed out that the Federal Reserve needs to act carefully when approving the first rate cut to ensure that it does not trigger previously suppressed spending by businesses and households, causing inflation to begin to “rebound.”

Bostic told reporters on the sidelines of the Atlanta Federal Reserve meeting, “It's in our interest not to start a rebound... For me, I'd rather wait longer to make sure this doesn't happen,” he added. He added that he still expects inflation to fall this year, and it is appropriate to cut interest rates once in the fourth quarter.

“I'm in no hurry to cut interest rates,” Bostic said. “We need to ensure that when we start on this path, inflation is clearly falling towards 2%... The existence of potential prosperity means we have to be very careful about when to take our first action, which could mean we have to act later.”

Federal Reserve Supervisory Vice Chairman Barr also expressed similar views at an event held by the Dallas Federal Reserve. He reiterated that the higher-than-expected inflation reading for the first quarter did not increase his confidence that price pressure was easing

“For me at least, this means we need to maintain current interest rates longer than we previously anticipated... We need to see more evidence of continued progress in inflation so we can consider adjusting policy interest rates.

The Federal Reserve will release the minutes of the April 30-May 1 meeting on Wednesday. At the end of the May 1 meeting, Federal Reserve Chairman Powell said that policymakers believed that “it will take longer than previously anticipated” to have sufficient confidence in falling inflation to decide to cut interest rates.

Boston Federal Reserve Chairman Collins also said on Tuesday (May 22) that neutral interest rates may be higher, at least in the medium term.Collins: Pointed out that increased uncertainty is still a characteristic of the economy; we must not overreact to any data. It is important to be patient during this period. Uncertainty is a key factor at this time. As recruitment becomes easier and wage pressure falls, companies have expressed a “cautious optimism” attitude. Many factors have kept the labor market strong, but it is being rebalanced under the influence of tight monetary policies

Collins pointed out that there are many reasons to think that the Fed's policy is “moderately” restrictive, and some effects are still unseen.

The dollar rose slightly, and Fed officials called for patience to wait for the first time to cut interest rates

The dollar rose against the euro on Tuesday after Federal Reserve policymakers said that the current prudent approach is to wait a few more months before starting to cut interest rates to ensure that inflation is actually on track to return to the 2% target.

The US dollar is basically flat against other currencies, and the US will celebrate the Memorial Day holiday next week.

Karl Schamotta, chief market strategist at Corpay, said, “Economic data catalysts are lacking this week, and foreign exchange trading is in a narrow range. However, with the support of a series of 'higher and longer' messages from Federal Reserve officials, the US dollar still stands firm.”

Foreign exchange trader Helen Given of Monex USA said: “Statements from Fed policymakers are driving the market—so far, they haven't said anything that surprised traders. Unless the minutes of Wednesday afternoon's Federal Open Market Committee (FOMC) meeting are unexpected, the week is likely to remain fairly calm.”

Federal Reserve Chairman Powell also ruled out the possibility of raising interest rates at a press conference after the policy meeting earlier this month. The Federal Reserve kept interest rates unchanged after the meeting.

Vishal Khanduja, co-head of the broad-market fixed income division of Morgan Stanley Investment Management, said: “This rules out the tail risk situation where the Federal Reserve is still considering raising interest rates, because considering a rate hike is actually questioning their assumptions that interest rates are sufficiently restrictive.”

Investors will also focus on Thursday's ECB salary data and Eurozone Purchasing Managers' Index (PMI), which may provide further clues about the Eurozone monetary policy cycle.

US bond yields have declined, and investors are waiting for the Federal Reserve to release the minutes of the meeting

US Treasury yields fell on Tuesday as investors waited for the Federal Reserve to release the latest policy meeting minutes on Wednesday to get new clues about when the Fed might start cutting interest rates.

As data weakens and inflation shows signs of easing, 10-year bond yields have fallen from the five-month high they hit at the end of April.

Michael Lorizio, senior fixed income trader at Manulife Investment Management in Boston, said, “We have reason to believe that the rapid pace of inflation we saw in the first quarter was unsustainable and will not continue in the future.”

Consumer price data released last week was lower than expected, and retail sales data for April were also weak. This boosted expectations that the Federal Reserve will start cutting interest rates in September. But since then, these expectations have been weakened as Federal Reserve officials emphasized the need to see further progress.

Federal Reserve policymakers said on Tuesday that it is best to wait a few more months before starting to cut interest rates to ensure that inflation is indeed on the path back to the 2% target level.

The Federal Reserve will release the minutes of its April 30-May 1 meeting on Wednesday, which may reflect more concerns about higher-than-expected inflation in the first quarter, as the meeting was held before last week's consumer price inflation report was released.

The Federal Reserve said at the meeting that it is still inclined to ultimately reduce borrowing costs, but acknowledged that disappointing inflation data may delay interest rate cuts for some time.

The minutes may also provide more details on the Federal Reserve's plan to slow balance sheet contraction.

The Federal Reserve announced that it will slow down the pace of contraction from June 1 and reduce the monthly treasury bond holdings from the current 60 billion US dollars to 25 billion US dollars. The monthly mortgage backed securities (MBS) reduction is still $35 billion.

The 10-year Treasury yield fell 2 basis points to 4.416% on Tuesday. That yield fell from 4.739% on April 25, when it was the highest level since November 2.

The two-year US Treasury yield fell 0.5 basis points to 4.833% on Tuesday. On April 30, the yield reached 5.045%, the highest level since November 14.

It is worth mentioning that concerns about the geographical situation seem to have abated. According to reports, Israel and the US have reportedly reached an agreement to put off plans for a large-scale attack on Rafah. However, investors still need to keep an eye on news related to the geographical situation.

There is relatively little economic data for this trading day. In addition to the minutes of the Federal Reserve meeting, investors should also pay attention to the speeches of other Federal Reserve officials.

At 08:06 Beijing time, spot gold was currently reported at 2422.47 US dollars/ounce.