On Thursday morning (July 18th) in the Asian market, spot gold fluctuated narrowly and is currently trading around $2460.79 per ounce. On Wednesday, the gold price surged and fell back, hitting a historical high of around $2483.56 per ounce earlier. However, it gave up its gains in the late trading session and closed at around $2458.51 per ounce. Fundamentally speaking, there is no obvious bearish news, and the significant decline in gold prices may be due to profit taking by bulls.

Relatively speaking, Fed officials continued to deliver dovish speeches this week, and the latest US real estate data also performed poorly. The Fed's brown book shows that businesses expect future growth to slow down, the labor market continues to be weak, the US dollar index has fallen to a nearly four month low, and US bond yields continue to weaken. All of these have limited the short-term downside space for gold prices and are expected to provide opportunities for them to further rise.

David Meger, head of alternative investments and trading at High Ridge Futures, said, "We expect the Federal Reserve to get closer to cutting interest rates, and we have seen this. Such expectations are driving yields to continue to slowly decline, coupled with the weakening of the US dollar, which is the main supporting factor behind the gold trend

More Federal Reserve policy makers have stated that they are increasingly convinced that the pace of price increases is on the path to falling back towards the Federal Reserve's target, following higher than expected price increases earlier this year.

Federal Reserve Governor Waller said on Wednesday that the timing of a rate cut is "approaching," but the uncertainty of the economic trend makes the specific action time uncertain.

Data shows that the production growth rate of US factories in June exceeded expectations, contributing to a steady rebound in output in the second quarter.

According to the CME FedWatch Tool, the market currently believes that there is a 98% chance of the United States cutting interest rates in September. Relatively speaking, market sentiment has declined as the previous day the market expected a 100% probability of the Federal Reserve cutting interest rates in September.

The US dollar index fell about 0.5% on Wednesday to a near four month low of 103.73, the lowest closing price since March 22, lowering the price of gold for investors holding other currencies. On Thursday in the Asian market, the US dollar index continued its downward trend, hitting a low of 103.64, a decline of about 0.09%.

This trading day, we will focus on changes in the number of initial jobless claims in the United States, pay attention to the European Central Bank's interest rate decision, the July Philadelphia Fed Manufacturing Index, and keep an eye on the geopolitical situation and news related to the US election.

The construction rate of single family homes in the United States has hit an eight month low, and there are signs of recovery in the manufacturing industry

The single family housing construction rate in the United States fell to an eight month low in June, as mortgage rates rose, indicating that the housing market is likely to drag down economic growth in the second quarter.

The report released by the US Department of Commerce on Wednesday also showed that single family residential building permits fell to a one-year low in June, indicating that even if the Federal Reserve cuts interest rates as scheduled in September, the expected rebound in construction activity may be suppressed as a result.

However, the shortage of second-hand housing supply still provides support for the construction of new houses. The shortage of supply has led to high housing prices, coupled with rising borrowing costs, making the dream of buying a house, which has long been regarded as the American Dream, unattainable for many people.

"The United States has not built enough single family homes to alleviate the shortage of affordable housing, which will further inflate the housing price foam and make the cost of buying new houses more unbearable," said Christopher Rupkey, chief economist of FWDBONDS.

According to the Bureau of Statistics of the US Department of Commerce, the construction of single family homes, which account for a large proportion of residential construction, decreased by 2.2% month on month in June. After seasonal adjustment, the annual rate was 980000 units, the lowest level since October last year.

The May data has been revised upwards to 1.002 million sets, down from the previous value of 982000 sets. The construction rate of single family homes in June increased by 5.4% year-on-year. For most of last year until the first quarter of 2024, residential construction showed strong momentum due to a shortage of second-hand housing supply.

However, against the backdrop of high inflation and a strong economy, the average interest rate for 30-year fixed rate mortgages rebounded to over 7% in April, causing this strong momentum to gradually weaken.

Despite the confidence of home builders dropping to a seven month low in July, the National Association of Home Builders (NAHB) has improved its expectations for single family home sales over the next six months.

Economists estimate that residential investment (including housing construction) is likely to have a drag on the second quarter gross domestic product (GDP). Residential investment contributed over half a percentage point to GDP growth in the first quarter.

The Atlanta Fed expects a year-on-year GDP growth rate of 2.7% in the second quarter. The growth rate for the first quarter was 1.4%. The government is scheduled to release the second quarter economic growth data next week.

Ian Shepherdson, Chief Economist of Pantheon Macroeconomics, said, "We expect a rate cut later this year, which will have a mixed impact on the overall residential construction industry. We believe that the Federal Reserve will respond to the rising unemployment rate as it will curb the influx of new home buyers

In June, the construction permits for single family homes decreased by 2.3%, with an annual rate of 934000 units, the lowest level since May 2023. The construction of multi household residential buildings surged by 22.0%, reaching 360000 units. The overall housing construction increased by 3.0%, reaching 1.353 million units.

Economists previously predicted that housing starts would rebound to 1.3 million units. Compared to the same period last year, the new housing construction rate has decreased by 4.4%. The number of multi household residential building permits surged by 19.2%, with an annual rate of 460000 units. This resulted in an overall increase of 3.4% in building permits, with an annual rate of 1.446 million units.

The number of houses approved for construction but not yet started increased by 1.8% to 277000 units. The backlog of single family residential buildings increased by 0.7%, reaching 140000 units.

The completion rate of single family homes increased by 1.8%, reaching 1.037 million units. The overall housing completion rate increased by 10.1%, reaching 1.71 million units, the highest level since January 2007. Real estate brokers estimate that the housing construction and completion rates need to be maintained within the annual range of 1.5-1.6 million units per month in the long term to make up for the inventory gap.

Although the real estate market data is mixed, another interest rate sensitive industry, manufacturing, may be showing signs of recovery.

Another report released by the Federal Reserve on Wednesday showed that industrial production increased by 0.4% month on month in June and 1.0% in May, while automobile production surged to a nine-year high.

In June, factory production increased by 1.1% year-on-year, with an annualized growth rate of 3.4% in the second quarter. Prior to this, the manufacturing industry had experienced a decline for four consecutive quarters.

Bernard Yaros, Chief American Economist at Oxford Economics, said, "The manufacturing industry is emerging from its previous slump

Federal Reserve's Beige Book: US businesses expect future growth to slow, labor market remains weak

US economic activity expanded at a mild to moderate pace from late May to early July, with businesses expecting future growth to slow down. They also reported signs of continued weakness in the job market, which is consistent with the Federal Reserve's shift in tone. The Federal Reserve has recently been more closely assessing the extent of the slowdown in labor demand to ensure that it does not wait too long before cutting interest rates.

The latest assessment of the economic health by the Federal Reserve also shows a slight increase in inflationary pressures, with most Federal Reserve regions reporting that input costs have begun to stabilize.

In its survey report released on Wednesday, the Federal Reserve stated that "economic activity in most regions maintained a slight to moderate growth rate during this reporting cycle," and conducted a survey of business contacts in 12 regions before July 8th.

The survey pointed out that although seven regions of the Federal Reserve reported a certain degree of economic activity growth, five regions had flat or declining economic activity, three more than the previous reporting period, and business forecasts were bleak.

The Federal Reserve survey stated that "due to uncertainties such as the upcoming election, domestic policies, geopolitical conflicts, and inflation, the expectation for economic performance in the next six months is a slowdown in growth

The report shows that the upcoming US presidential election in November is receiving increasing attention from corporate contacts. The Atlanta Federal Reserve stated that the uncertainty of the election results seems to be dragging down investment activity in the renewable energy sector, while the Dallas Federal Reserve stated that the prospects of the manufacturing, construction, and real estate industries are affected by factors such as election uncertainty.

The Federal Reserve releases an analysis report approximately every six weeks, and previously, Federal Reserve Chairman Powell and his colleagues have emphasized that risks related to inflation and employment are currently in a balanced state. Earlier on Wednesday, two Federal Reserve decision-makers stated that they were "getting closer" to a rate cut, and these remarks seemed to lay the foundation for reducing borrowing costs in September.

Federal Reserve officials were hit hard by higher than expected inflation in the first half of this year, but they were encouraged by more positive inflation data in April, May, and June. The indicators favored by the Federal Reserve show that the inflation rate remains at 2.6%. The next release date for this indicator is July 26th.

As inflation resumes its downward trend, Federal Reserve officials are increasingly citing the significant deterioration of the labor market as a reason for the Fed to begin lowering policy rates.

Federal Reserve officials say 'closer' to cutting interest rates as inflation trajectory improves and labor market becomes more balanced

Federal Reserve policymakers stated on Wednesday that, given the improved inflation trajectory and a more balanced labor market, the Fed is "closer" to cutting interest rates.

Federal Reserve Board member Waller and New York Fed President Williams both pointed out that the relaxation of monetary policy is getting closer. Waller emphasized this point in his speech at the Kansas City Fed, and Williams also expressed this view in an interview.

In addition, Richmond Fed President Barkin said he is "very encouraged" by the widening range of inflation decline. He said to a business group in Maryland, "I hope to see this situation continue

Federal Reserve decision-makers, including Chairman Powell, have commented this week, pointing out their growing confidence in the ongoing trend of inflation slowdown that began last year, despite a brief rebound in inflation earlier this year.

Federal Reserve policymakers have stated that price pressures seem to be easing across the board, with commodity prices falling, housing cost increases slowing down, wage growth becoming more moderate, and long-awaited easing in service sector price increases.

Williams and Waller seem to have ruled out the possibility of a rate cut at the Federal Reserve's July 30-31 policy meeting, a view reflected in the financial markets, where the current market digestion of the possibility of a rate cut at this meeting is less than 5%.

Waller listed September to December as a potential time period when conditions for interest rate cuts are ripe, and omitted July.

Actually, we will learn a lot of information between July and September. We will have two months of inflation data, "Williams said in an interview

Karim Basta, Chief Economist of III Capital Management, wrote that the three decision-makers who spoke on Wednesday all "pointed to the beginning of policy easing in September".

The financial market agrees with this and continues to bet on Wednesday that the Federal Reserve will further reduce borrowing costs in November and December, lowering the target range for the benchmark policy rate to 4.50% -4.75% by the end of 2024. Over the past year, the Federal Reserve has maintained the target range for policy rates at 5.25% -5.50%.

Waller had stated in May that he needed to see several more months of improved inflation data to believe it was necessary to cut interest rates. He said that last week's data showed the first month on month decline in the consumer price index in four years, and "this is the second consecutive month of very good news".

He elaborated on three possible scenarios for inflation in the coming months. Waller said that the two most likely scenarios indicate that the inflation rate will continue to decline towards the Fed's 2% target in the coming months, although in one scenario, the decline in inflation is faster and more sustained than in the other. The third and least likely scenario is that inflation will accelerate again and interest rates will continue to remain unchanged.

Nevertheless, Waller said, "Given that I believe the first two scenarios are most likely to occur, I think the time to lower policy rates is getting closer and closer

Williams, who is also the Vice Chairman of the Federal Open Market Committee (FOMC), said, "I think the past three months - including June based on what we have seen - seem to bring us closer to the downward trend in inflation we are looking for. I hope to see more data to further confirm that inflation is sustainably moving towards the 2% target. We now have several months of good data

US Treasury yields fall to a four month low as multiple Fed officials report progress on inflation

The yield on US Treasury bonds fell to a four month low on Wednesday, after senior Federal Reserve officials said progress had been made in easing inflation towards their 2% target, creating conditions for a possible first rate cut in September.

Loomis, Sayles and Company's Matt Eagan said, "Their speech today is like saying, don't expect a rate cut in July, rule out this possibility

The Federal Reserve still insists on seeing more good data information, "said Vail Hartman, US interest rate strategist at Montreal Bank Capital Markets. This does basically rule out the possibility of action in July, but it is still very likely that action will be taken at the September meeting

The recent softening of employment data and slowing inflation have increased the likelihood of an imminent interest rate cut.

The yield on 10-year government bonds fell 2 basis points on Wednesday, hitting the lowest level since March 13th at 4.146%.

The position adjustment activity for Trump's possible victory in the November US presidential election continued to weaken on Wednesday. After the attempted assassination last Saturday, Trump's chances of winning have increased. The online gambling website PredictIt's odds suggest that Trump's chances of winning are about 67%, up from about 60% last Friday, and Biden's chances of winning are about 28%.

Analysts say that after being elected president, Trump may adopt more pro business policies, as well as tax cuts and tariffs, which may drive up inflation. This pushed the yield of long-term bonds up on Monday, resulting in a significant steepening of the yield curve of government bonds.

Eagan said, "The curve has always been a very crowded trade," referring to traders buying shorter term bonds and selling longer term bonds.

He said that after Monday's trend, the steep trend has reversed, which is likely to be profit taking.

It is expected that the yield of longer-term government bonds will become higher relative to the yield of shorter term government bonds. Regardless of whether Trump or Biden is president, as the US budget deficit situation worsens, the supply of government bonds will increase.

The European Central Bank is expected to hold its July meeting, but the door to a September rate cut remains open

The European Central Bank is almost certain on Thursday to keep interest rates unchanged and will imply that the next step will still be a rate cut, although this guidance is expected to be vague and conditional.

The European Central Bank lowered interest rates from a record high last month, which was widely expected by the market, but some ECB decision-makers believe that this move was too hasty. Due to persistently high inflation and wage growth within the eurozone, it is expected that the European Central Bank will be more cautious about subsequent actions.

European Central Bank President Christine Lagarde will attempt to strike a balance at this meeting, although she believes that price pressures are decreasing as expected, risks still exist, so more data is needed before decision-makers can pull the trigger for interest rate cuts again.

Since Lagarde had already sent this message a few weeks before the meeting, the focus of the outside world has shifted to the September meeting, which indicates that Thursday's policy meeting may be the least complicated since the outbreak of COVID-19.

We believe that the European Central Bank may convey a message that they still firmly believe inflation is declining and that they have the overall ability to further ease policy, "said Peter Schaffrik, strategist at RBC Capital Markets.

The market expects the European Central Bank to cut interest rates twice for the remainder of this year and five times by the end of next year, and no policymakers have questioned this view in recent weeks.

We believe that the European Central Bank does not find it inappropriate for the current market expectation of another 25 basis points interest rate cut in September, "said Antonio Villarroya, an economist at Santander CIB, predicting that the ECB will cut interest rates quarterly to bring the deposit rate down to 2.5% by September 2025.

The European Central Bank will announce its policy decision at 20:15, followed by a press conference by Lagarde at 20:45.

Daily chart of spot gold