Can the Federal Reserve's credibility crisis push gold prices to new highs?

　　Source: China Gold Net

　　As an asset hedging against currency uncertainty, gold has received price support in a market where expectations of US Federal Reserve rate hikes were excessively hyped, but signals about the shift in monetary policy have become increasingly ambiguous. Whether the bullish trend in gold can persist depends primarily on the direction of the Federal Reserve's policy and changes in the market's level of trust.

　　However, the market's trust in the Federal Reserve is a variable, irrational factor—like changes in interpersonal relationships, even subtle market signals can undermine confidence. Currently, the Federal Reserve's credibility is facing an extremely challenging test.

　　After Walsh became the new Chair of the Federal Reserve, he held rates unchanged at 3.5% to 3.75% for two consecutive policy meetings. His public statements insist on “zero tolerance” for high inflation and repeatedly underline the uncompromising 2% inflation target. However, in practice, he did not immediately raise rates; instead, he initiated several internal reforms: reducing forward guidance, establishing special working groups, reviewing communication mechanisms, balance sheet management, and the inflation policy framework. The main logic behind these moves is to guide the market to focus on economic data itself, weaken policy noise created by officials’ remarks, and give the Federal Reserve more room to observe and buffer decisions.

　　Under this logic, international gold prices will remain supported through November. The US Treasury’s expansion of long-term bond buybacks can ease the upward trend in US Treasury yields from September to November, and the main purpose is to suppress the US dollar exchange rate and long-term interest rates to create a stable and favorable environment for the stock market during the midterm elections. A pullback in Treasury yields and a weaker dollar further provide additional momentum for gold’s rise; silver, with both precious metal safe haven and industrial commodity attributes, benefits in tandem along with gold and becomes stronger.

Editor: Zhu Henan