The Federal Reserve did not raise interest rates, and the gold price fell instead of rising. "4000 US dollars is an important support level. Once it falls below this threshold, the price may continue to edge lower."

The Federal Reserve concluded its latest interest rate meeting on local time October 29, announcing that it will keep the current interest rate level unchanged. As of press time, international spot gold fell below $4,000 per ounce, with its decline once exceeding 1%.

The abnormal market performance has sparked widespread discussions across the market: the Federal Reserve did not raise interest rates, why has the gold price continued to fall under pressure? Has gold hit the bottom at present, and can investors enter the market?

Decline Originates From Expected Repricing

Since hitting a phased high of $4697.07 per ounce on August 25, the spot gold price has kept falling all the way, fluctuating repeatedly around the $4000 mark before this Fed interest rate meeting. After the Federal Reserve announced that it would maintain the current interest rate level unchanged, the gold price still did not rebound.

Wang Hongying, Dean of the China (Hong Kong) Financial Derivatives Investment Research Institute, told China News Finance that the Federal Reserve did not explicitly state at this interest rate meeting that it would further raise interest rates, but the voting result of this meeting is on the hawkish side, with two committee members demanding an interest rate hike of at least 25 basis points. At present, the market generally judges that against the backdrop of high inflation, the Federal Reserve may raise interest rates in December this year, no later than the first quarter of 2027, and the probability of interest rate hike has risen to about 85%. This expectation directly affects the trend of gold prices.

From the perspective of the overall macro background, Wang Hongying said that the military conflict in the Middle East is still ongoing, Brent crude oil has remained at a high level above $100, which cannot form positive support for the substantial decline of US inflation, and the structural pressure of inflation still exists.

Wang Hongying pointed out that the current US Treasury bond yield has continued to stay above 5%, which fully proves that inflation has structural characteristics, and subsequent interest rate hikes by the Federal Reserve are a high probability event, which will further suppress the gold price.

Yuan Zheng, a precious metals researcher at Galaxy Futures, pointed out to China News Finance that the decision to keep interest rates unchanged in October has been fully priced in by the market, and it is expectations rather than reality that really drive the decline. The situation in the Middle East has pushed oil prices to a high level, directly igniting concerns about inflation stickiness, and further strengthening the Fed's "higher for longer" tightening path. As a zero-interest asset, the upward expectation of real interest rates will directly raise the holding cost of gold, and this suppression logic has outweighed the benefits brought by the temporary decline in US Treasury yields in the same period.

Yuan Zheng further analyzed that the liquidity run caused by the shock of tech stocks forced some funds to sell gold in exchange for cash or meet margin requirements, which amplified the decline. In essence, the market is pricing in advance for a "tighter monetary environment in the future", rather than reacting to the unchanged interest rate at present.

If the expectation only stays at the macro level, the decline may be limited; it is the trading behavior that really amplifies the volatility.

Wu Zewei, a special researcher at Shangsu Bank, said that the US Treasury bond yield has risen accordingly. As a zero-interest asset, the holding cost of gold keeps rising, and funds naturally turn to interest-earning assets such as US Treasury bonds. The previous long gold transactions were too crowded. Once the expectation turns, long positions will be closed in a concentrated manner, further amplifying the downward pressure on prices.

Wu Zewei pointed out that the buying power brought by geopolitical risk aversion is limited, and it is difficult to hedge the suppression brought by the rise of real interest rates, which finally forms the situation that the interest rate resolution remains unchanged but the gold price continues to weaken.

Bottom Signals Have Not Yet Come True

After the expectations are fully priced in, has the bottom appeared? Looking at the technical side first, the answer is not optimistic. Wang Hongying said that from the perspective of technical patterns, gold is still in the downward channel of annual-level technical adjustment, and there is insufficient technical evidence that gold has hit the bottom at this stage.

Wang Hongying pointed out that $4000 per ounce is an important support level for gold. Once it effectively falls below this level, a large number of stop-loss orders will pour out in the market, and it is not ruled out that the gold price will further test the new technical support range of $3800 to $3900 per ounce.

Apart from the key level, there are event risks hanging over the market. Wang Hongying pointed out that gold has additional short-term downside risks. If the current structural factors affecting US inflation suddenly disappear, for example, the United States and Iran reach an agreement and the Russia-Ukraine conflict comes to an end, gold risk aversion sentiment will cool down rapidly, which will drive the gold price to continue to fall.

For this reason, the idea of short-term operation is also defensive. Wang Hongying believes that from the perspective of trading strategy, gold can adopt the operation idea of technical short selling on rallies in the short term, and buy put options at the same time.

Yuan Zheng believes that in the short term, $4000 is a psychological level that is contested repeatedly. If it continues to be broken, it may trigger a deeper correction.

Yuan Zheng said that the US-Iran conflict has pushed up oil prices, and inflation pressure has not receded, but its spillover effect on prices is not yet clear. The real consolidation of the bottom will most likely wait around the December interest rate hike, when the interest rate path may have the possibility of gradual shift. Before that, the gold price is more likely to maintain a volatile bottoming out rather than a V-shaped reversal.

Blind Bottom Fishing Poses Great Risks

The bottom is unclear and the short-term trend is weak, can gold still be bought?

Yuan Zheng said that in the medium and long term, the trend of central banks buying gold in various countries has not changed (the People's Bank of China has increased its holdings for 23 consecutive months), and the logic of de-dollarization still exists, so the possibility of a long-term gold bear market is very low. Therefore, the conditions for short-term speculative "bottom fishing" are not sufficient, and it is more suitable to carry out low-level layout strategies in key support ranges in stages.

In the medium and long term, the supporting logic falls on more macro variables. In Wang Hongying's view, gold has good long-term investment value in the medium and long term. At present, the US government debt has exceeded 41 trillion US dollars. Relying on the fiscal revenue brought by interest rate hikes, it is difficult to pay the interest on national debt, let alone repay the principal. The credit risk of the US dollar continues to highlight, and gold can effectively hedge the US credit crisis.

Wang Hongying said that central banks of various countries continue to purchase gold in the process of falling gold prices, which provides solid support for the medium and long-term trend of gold. For ordinary investors, this means that it is advisable to wait and see in the short term and follow up in the long term, waiting for the fundamental inflection point rather than chasing short-term rebounds.

In Wu Zewei's view, the current gold price has not yet ushered in a definite bottom, and it is still in the bottoming stage in the short term. Blind bottom fishing carries great risks.

Wu Zewei said that the real bottom needs to wait for the expectation of interest rate cuts to heat up again, the yield of US Treasury bonds to fall continuously, and the short side forces to be fully released. It is easy to bear continuous drawdowns for left-side advance layout. The safe layout timing needs to wait for the inflation data to decline steadily, employment indicators begin to weaken, and the market unanimously confirms the window of monetary policy shift.

Wu Zewei suggested that ordinary investors should not enter the market with a heavy position at one time, and should wait for the emergence of the fundamental inflection point before making phased layouts. Before the bottom signal is fulfilled, keep a light position and wait and see to avoid unnecessary capital losses in the process of fluctuating and finding the bottom.

This article is from the WeChat official account "China News View" (ID: jwview), written by Li Ziman, and authorized for release by 36Kr.