- Gold price looks for a direction as the focus shifts to Fed policy.
- A no-change interest rate decision from the Fed is widely expected but with the possibility of further rate hikes ahead.
- The Israeli defense forces gradually in Gaza to demolish Hamas.
Gold price (XAU/USD) struggles for direction as market participants eye the interest rate decision by the Federal Reserve (Fed) and further developments in the Israel-Palestine war. The near-term demand for the precious metal is bullish as Middle East tensions are seen escalating further. The Israeli military troops are gradually entering Gaza for the ground assault to root out Hamas.
In addition to Middle East tensions, higher expectations of a steady monetary policy from the Fed on Wednesday are consistently supporting the Gold price. Fed policymakers have been supporting keeping interest rates unchanged in the range of 5.25-5.50% due to higher US long-term bond yields and consistently easing price pressures. The Fed is expected to advocate for keeping interest rates higher for a longer period as strong consumer spending and tight employment conditions could keep the inflation outlook stubborn.
Daily Digest Market Movers: Gold price consolidates ahead of Fed policy decision
- Gold price trades directionless below the psychological resistance of $2,000 as investors await further development on the Israel-Palestine war and the Fed’s monetary policy decision.
- The precious metal struggles to come out of the woods but a volatile action is widely anticipated after the announcement of the interest rate decision by the Fed on Wednesday.
- Investors hope that easing price pressures and higher US long-term bond yields would allow Fed policymakers to advocate a steady monetary policy decision.
- Fed Chair Jerome Powell and his colleagues are expected to keep doors open for further policy tightening as robust consumer spending and tight labor market conditions could make consumer inflation stubborn.
- 10-year US Treasury yields have eased to 4.84% ahead of the Fed policy announcement but are extremely high and significantly impacting financial conditions in the US economy.
- Cleveland Fed Bank President Loretta Mester said ahead of November’s monetary policy 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.
- The majority of Fed policymakers hope for a ‘soft landing’ from the Fed as price pressures are consistently easing and the US economy is resilient.
- The US Dollar Index (DXY) retreats from 106.40 (supporting Gold) ahead of the Fed’s monetary policy and crucial economic indicators such as private payrolls and the ISM Manufacturing PMI data for October.
- As per the estimates, 150K fresh private jobs were added against 89K added in September. The Manufacturing PMI is seen steady at 49.0, below the 50.0 threshold for the 12th month in a row.
- Investors should note that the survey done by S&P Global on private factories for October showed that private Manufacturing PMI met the 50.0 threshold. US firms remain optimistic that the Fed is done with hiking interest rates.
- The US manufacturing and service sector is recovering faster due to a strong growth outlook amid robust spending by households. Meanwhile, Goldman Sachs hiked their GDP growth projections for the fourth quarter of 2023 and the first quarter of 2024 to 1.6% and 1.7% respectively.
- The near-term appeal for the Gold price remains upbeat as Israeli defense forces (IDF) prepare for a ground assault in Gaza to dismantle Palestine military troops in retaliation for airstrikes from Hamas.
- The IDR moves gradually in Gaza to keep hopes of the release of more than 200 hostages alive.
- Meanwhile, the World Gold Council (WGC) reported that gold demand by Indian jewelers fell annually due to higher prices. The WGC said that global gold demand excluding over-the-counter (OTC) trading slipped 6% in the third quarter, Reuters reported. The WGC hopes that the Gold buying from central banks could reach a new record in 2023.
Technical Analysis: Gold price hovers near $2,000
Gold price trades in a limited range around $1,995 as investors await the Fed’s monetary policy. The precious metal delivered a time-corrective move after facing barricades near a five-month high of $2,009. The broader Gold price outlook remains bullish as the 20-day Exponential Moving Average (EMA) has delivered a bullish crossover above the 50 and 200-day EMAs. Momentum indicators oscillate in the bullish range, warranting more upside.
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.
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