Expectations of interest rate cuts cooling down

The job market shows slight improvement, and the US economy still demonstrates resilience.

Starting from the ADP data in July, the US job market data began to weaken and became the main factor affecting the Federal Reserve's monetary policy, leading to a significant rate cut of 50 basis points by the Federal Reserve in September.

However, after the Federal Reserve's interest rate meeting in September, the US announced that the job vacancy data, the "small non-farm" ADP, and the non-farm data released on October 4 were quite impressive. This suggests that after a period of weakness, the US job market has begun to improve. Especially on October 4, the US September non-farm employment data recorded 254,000 people, far exceeding the market expectation of 140,000 people; the US September unemployment rate recorded 4.1%, and after two consecutive months of decline, the market has a different view of the US job market and is more optimistic about a soft landing for the US economy. Therefore, the market's expectation for a significant rate cut by the Federal Reserve in November has noticeably cooled down.

The US dollar and US Treasury bonds may rebound, and gold prices may face short-term pressure.

Due to the improvement in the US job market, the market's expectations for the Federal Reserve's subsequent rate cut path have also changed. According to the CME "FedWatch" data, after the non-farm employment data was announced, the probability of a 50 basis point rate cut by the Federal Reserve in November has significantly decreased, while the probability of a 25 basis point rate cut has significantly increased to nearly 90%.

The US dollar index has rebounded from the previous level near 100, partly because the US's own economic data has slightly improved, and partly because the US has put pressure on other countries' central banks to escort the US dollar index. After the new Japanese prime minister took office, he clearly stated that it is not appropriate to further raise interest rates. This means that before the end of the US election, the US dollar index will most likely maintain a high position and may even rebound further.

Looking at US Treasury bonds, the yield on 10-year US Treasury bonds weakened to around 3.6% after the September interest rate decision and has recently rebounded and returned to the 4% level. Against the backdrop of the cooling down of expectations for a significant rate cut in the short term, there is still a risk of further rebound in the yield on 10-year US Treasury bonds, and gold prices may face short-term pressure.

Short-term pressure does not change the long bull market, and the gold price center gradually moves up.

In the short term, the Federal Reserve's slowing down of the rate cut pace puts pressure on gold prices, but in the long term, the gold bull market may continue. Firstly, from a geopolitical perspective, geopolitical frictions in the Middle East are still ongoing, and there is even a risk of further escalation. Israel has claimed that it is fighting on seven fronts, and the possibility of a short-term cooling down is not high.Secondly, there is a risk of depreciation for the US dollar. On one hand, the global trend towards de-dollarization is currently underway, which is not conducive to the dollar maintaining its strength. On the other hand, in recent years, various strikes in the United States have frequently occurred, and the ultimate outcomes have generally been wage increases, essentially pricing labor. After the Federal Reserve initiated a rate-cutting cycle, capital outflows from the United States. In order to stabilize asset prices, Wall Street ultimately chose to abandon the dollar, making it quite likely that the dollar will depreciate to maintain asset prices. Therefore, there is a significant risk of further substantial devaluation for the US dollar index in the future.

Lastly, physical demand remains robust. Data from the World Gold Council shows that inflows into physically backed gold ETFs worldwide have continued for five months. Additionally, several central banks, including those of India, Poland, Uzbekistan, and the Czech Republic, are still increasing their gold reserves. Thus, the trend of a bull market in gold prices is likely to continue.

Technically speaking, on the weekly chart, the recent high-level adjustment of the market and the closing of a bearish candle suggest caution regarding the risk of a pullback after this round of market rally and stabilization. On the daily chart, the market has broken below the 20-day moving average, indicating a risk of further weakening, with a potential to test the support at the 62-day moving average around $2575. However, it is not advisable to be overly bearish on gold before an effective break below the 62-day moving average.