Summary of Key Points
Fed Chairman Jerome Powell delivered his first "hawkish" speech at the Jackson Hole Symposium, emphasizing that inflation is still far above the 2% target and that interest rate hikes will continue if inflation does not slow down sufficiently. This statement ignited market expectations for a rate hike in September, leading to a sharp drop in gold prices (a nearly 3% decline in spot prices), an increase in U.S. Treasury yields, and a strengthening of the U.S. dollar. At the same time, there is a divergence of views among institutions regarding the future direction of gold prices: in the short term, gold is expected to decline due to interest rate hike pressures, while in the long term, its value is seen as rising due to high global debt levels and the trend of de-dollarization. The CPI and employment data for August will be crucial in determining whether the Fed will raise interest rates, and global safe-haven assets (such as U.S. Treasuries and gold) are facing significant changes.
What Did Powell's Hawkish Speech Really Say?
In simple terms, Powell's main message is that inflation has not been brought under control, and if necessary, further rate hikes will be implemented:
- He explicitly stated that inflation is still too high and that if there is no clear and rapid decline in core inflation towards the 2% target, the Fed has more work to do (implying further rate hikes).
- He also attributed the high inflation levels over the past 65 months to the central bank, reiterating that the 2% inflation target is "unwavering"—sending a strong signal of his commitment to controlling inflation.
- Additionally, the July PCE data (a key indicator of inflation) came in above expectations the day before Powell's speech, raising the probability of a September rate hike to 57% according to Chicago Mercantile Exchange data.
Why Did Gold Drop by Nearly 3% in One Day?
The sharp drop in gold prices was not accidental; it was caused by a combination of three factors:
1. Increasing expectations of rate hikes, reducing the attractiveness of gold: Gold is an interest-free asset, and if the Fed raises interest rates, investing in banks or U.S. Treasuries would offer higher returns, increasing the "opportunity cost" of holding gold and leading to selling.
2. Profit-taking by investors: Gold had risen by 13% in three consecutive weeks, and many investors decided to lock in their gains by selling their holdings.
3. Triggered stop-loss orders: Many investors had set stop-loss orders (for example, to sell at $4,458 per ounce), and when the price reached that level, a large number of sell orders were executed, exacerbating the decline.
Divergent Views Among Institutions: Short-Term Decline or Long-Term Rise in Gold Prices?
Institutions have different perspectives on gold prices:
- Short-term decline: Jinyuan Futures believes that gold faces technical resistance at its current level, and combined with rising rate hike expectations, prices are likely to fall in the short term. Zhengxin Futures also predicts that funds will temporarily flow into tech stocks (such as those with strong earnings, like Nvidia), reducing demand for precious metals.
- Long-term rise: UBS maintains a target price of $4,600 for gold by the end of the year and even $5,400 by 2027, arguing that increasing global debt and a weakening U.S. dollar will enhance the value of gold as a safe-haven asset. Goldman Sachs also reaffirmed its forecast of $4,900 by the end of the year, noting that increased demand for bullish options could lead to greater price volatility.
Uncertainty Around U.S. Treasuries and Gold Prices: A Shift in Global Safe-Haven Assets?
Traditionally, U.S. Treasuries have been the safest global asset, but they are currently facing challenges:
- Long-term Treasury yields (e.g., 10-year bonds) remain high, and the market expected Powell to provide clarity on debt management strategies. However, he did not mention any plans for Treasury buybacks or comment on debt policy, further eroding confidence in these bonds.
- Ray Dalio, founder of Bridgewater Associates, has warned that a debt crisis could occur in about three years if the U.S. does not change its debt trajectory.
This has led to a search for new safe-haven assets. While gold was once a popular option, its price is currently under pressure due to rising interest rates, while U.S. Treasuries are also unstable.
The Next Key Events: August CPI and Employment Data
The Fed's interest rate meeting is scheduled for September 15-16, and these two indicators will be crucial:
1. August CPI data: If inflation declines more than expected, the Fed may refrain from raising rates, and gold prices could rebound. If inflation remains high, the likelihood of a rate hike increases, putting further pressure on gold.
2. August employment data: Strong employment numbers would support a Fed rate hike, while weak employment data would reduce this likelihood.
*In summary, these two data points will determine the short-term direction of gold prices.*
Final Conclusion
In the short term, gold prices may continue to fluctuate due to rising interest rate hike expectations. However, in the long run, the trends of high global debt and de-dollarization are likely to support gold prices. For individual investors considering investing in gold, it is advisable to wait for the August data before making a decision to avoid catching the short-term volatility.