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Gold Hits Record High Amid Expectations of China Stimulus, Middle East Tensions Support Oil

3 weeks ago

Gold surged to a record high as traders bet on further monetary easing to support the global economy, driven by growing expectations that China is preparing to ramp up stimulus measures to revive sluggish growth. The precious metal, a traditional safe-haven asset, benefited from increased uncertainty in global markets, especially as fears of escalating conflict in the Middle East mounted.

China fueled speculation of imminent stimulus by cutting a key short-term policy rate and announcing a rare economic briefing on Tuesday, featuring top financial regulators. This has heightened anticipation that the country will unveil new measures to bolster its economy, particularly as it struggles to meet its 5% annual growth target. Markets are now positioning for more aggressive fiscal and monetary support from Beijing, which could have ripple effects across global markets.

Oil prices also rallied, extending gains from their best weekly performance since April. The boost comes on two fronts: first, from optimism that China will roll out additional stimulus, potentially increasing demand for crude, and second, from heightened geopolitical risks in the Middle East. The ongoing conflict between Israel and Hezbollah threatens to escalate into a broader regional conflict, which could disrupt oil supplies and further drive prices higher. Analysts suggest that if tensions worsen, gold may see additional gains as investors seek safe-haven assets.

Global Focus on Fed Easing and China’s Stimulus Efforts

Investor attention is now turning to U.S. economic data due later this week, which is expected to provide further clarity on the pace and scope of the Federal Reserve’s easing cycle. With the Fed having already embarked on rate cuts, markets are closely monitoring how these moves might align with anticipated stimulus from China. The combination of Fed easing and fresh Chinese stimulus could offer significant support to global markets, especially in Asia and Europe. As China’s economy faces hurdles in hitting its 5% growth target, analysts argue that more stimulus from Beijing could buoy investor sentiment globally and foster a more positive outlook for Europe.

Meanwhile, in the U.K., Chancellor of the Exchequer Rachel Reeves is expected to strike an optimistic tone during the Labour Party’s annual conference, offering a counter-narrative to recent government warnings about the upcoming October budget. Reeves’ speech is anticipated to project a more positive outlook for the British economy, aiming to rebuild confidence after the government faced criticism for its downbeat economic messaging.

Yen Falls, Treasuries Muted Amid Japan Holiday

In currency markets, the yen weakened after Bank of Japan Governor Kazuo Ueda signaled that the central bank is in no rush to raise interest rates again. Ueda’s comments reinforced expectations that the Bank of Japan would maintain its accommodative stance for the foreseeable future, particularly as inflationary pressures in Japan remain subdued compared to other major economies. The yen’s decline reflects growing market sentiment that Japan will continue to lag behind global peers in terms of tightening monetary policy.

In Asia, trading in U.S. Treasuries was closed due to a holiday in Japan, while the U.S. dollar index remained largely unchanged as investors awaited key economic data from the U.S.

Fed Governor Waller Signals More Rate Cuts

On the monetary policy front, Fed Governor Christopher Waller said he would likely support quarter-point rate cuts at the next two Federal Open Market Committee (FOMC) meetings in November and December. Waller’s comments add further confirmation that the Fed is committed to its easing cycle, though the central bank is carefully balancing its actions to ensure that inflation continues to decelerate without causing undue harm to the labor market.

Markets will be closely watching the upcoming release of the Fed’s preferred inflation gauge  the core Personal Consumption Expenditures (PCE) index along with data on U.S. personal spending and income. Investors are hoping for a delicate balance in the numbers, where inflationary pressures continue to ease without a sharp deterioration in employment figures. This “goldilocks” scenario is seen as critical to ensuring the Fed can maintain its current trajectory of gradual rate cuts without stoking fears of a deeper economic slowdown.

In summary, the global economic landscape is increasingly shaped by both central bank actions and geopolitical risks. With China on the cusp of potential stimulus and the U.S. Fed continuing its rate-cutting path, markets are bracing for a volatile but potentially favorable environment for risk assets, while safe havens like gold and oil remain bolstered by uncertainty and geopolitical tensions.

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