- Gold price falls back marginally from five-month high as focus shifts to Fed policy.
- The Fed is widely expected to keep interest rates unchanged in the 5.25-5.50% range.
- Escalating Israel-Palestine war keep bullions’ demand firmer.
Gold price (XAU/USD) delivered a moderate corrective move after printing a fresh five-month high. The precious metal slips marginally as investors turn cautious on expectations that the Federal Reserve (Fed) will keep its doors open for further policy tightening and maintain the dialogue of ‘higher for longer interest rates’. The near-term outlook for bullion remains upbeat amid deepening Middle East tensions.
The Israeli army prepares for a ground invasion in Gaza to demolish the Palestinian military while the US keeps urging the former to delay a ground assault as it could impact the hostage situation. Neighboring Jordan warned that Israel’s ground war in Gaza would result in a humanitarian catastrophe of epic proportions. Going forward, investors will look for the UN Security Council meeting to discuss potential solutions for a ceasefire in the Israel-Palestine conflict.
Daily Digest Market Movers: Gold price slips nominally ahead of Fed policy
- Gold price edges down from five-month high near $2,010.00 as investors await the monetary policy decision by the Federal Reserve, which will be announced on Wednesday.
- The near-term demand for the Gold price remains upbeat as Middle East tensions keep safe-haven bids firmer.
- The US urged Israel to delay ground invasion in Gaza as it could derail hostage negotiations.
- Investors await the United Nations (UN) Security Council meeting, requested by the UAE, to discuss potential ground assault by Israel in Gaza, which could lead to plenty of casualties.
- An official from the Palestinian military has requested the immediate implementation of a UN general assembly decision to allow aid to the Gaza strip.
- The US Dollar Index (DXY) consolidates in a tight range as investors keenly await the Fed’s interest rate decision.
- As per the CME Fedwatch tool, traders see the Fed keeping interest rates unchanged at 5.25-5.50% almost certain. The odds of one more interest rate increase in any of the two remaining monetary policy meetings in 2023 have risen to 24% from 20% recorded last week.
- Tight financial conditions due to higher US long-term bond yields, moderately easing price pressures and deepening Middle East tensions are expected to allow Fed policymakers to maintain the status-quo consecutively for the second time.
- Cleveland Fed Bank President Loretta Mester said recently that higher bond yields are equivalent to one interest rate hike of 25 basis points (bps). The Fed could use higher Treasury yields as a substitute for further policy tightening.
- 10-year US Treasury yields have risen to 4.85% and are expected to expand further amid budget deficit worries.
- The core Personal Consumption Expenditure (PCE) inflation data released on Friday showed that inflation is broadly stubborn due to robust consumer spending.
- Monthly US core PCE accelerated at an expected pace of 0.3% in September against 0.1% growth in August. The annual core PCE rose by 3.7% but decelerated from August reading of 3.9%.
- In addition to the Fed’s monetary policy decision, investors would look for ADP Employment Change and the ISM Manufacturing PMI for October, which will be published on Wednesday.
- The release of the US factory data will be of utmost importance. A survey from S&P Global showed last week that the US Manufacturing PMI met the 50.0 threshold for the first time after 11 months. 50 is the threshold distinguishing expansion from contraction. If the US factory data manages to do so, the Fed will probably discuss keeping interest rates higher for a much longer period.
Technical Analysis: Gold price edges down from five-month high
Gold price falls nominally from five-month high of $2,009 as investors remain concerned about the interest rate guidance from the Fed, which will be delivered on Wednesday. The precious metal stabilizes above the crucial resistance of around $1,990, which is now acting as a major support for the Gold bulls. The broader Gold demand outlook turns bullish as the 20-day Exponential Moving Average (EMA) has delivered a bullish crossover above the 50 and 200-day EMAs.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
