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Gold awaits Fed Powell speech as Middle East tensions keep safe-haven demand intact

October 19, 2023| Forex Market


  • Gold price looks for guidance on interest rates from Fed Chair Jerome Powell.
  • The demand for safe-haven assets remains upbeat due to Middle East tensions.
  • US Biden shows support for Israel in the war against Hamas.

Gold price (XAU/USD) faced a nominal sell-off after registering a fresh two-month high as investors shifted focus to the speech from Federal Reserve (Fed) Chair Jerome Powell, which is likely to give clues about the interest rate outlook for the remainder of 2023. The broader outlook for Gold is still bullish as Middle East tensions have escalated after the Gaza hospital blast, which resulted in the death of hundreds of civilians and created unrest among the general public.

US President Joe Biden returned to Washington after visiting Israel and announced emergency aid for civilians in Gaza. Joe Biden said “loud and clear” that the US stands with Israel and is ready to provide to the country whatever is needed to defend itself against attacks from Hamas. The cautious market sentiment has improved the safe-haven bid significantly, which is keeping demand for bullions intact.

Daily Digest Market Movers: Gold price eyes Powell’s speech for further guidance

  • Gold price looks to extend upside above an 11-week high as demand for safe-haven assets remains intact due to Middle East tensions.
  • Middle East tensions escalated after a hospital in Gaza was bombed, resulting in hundreds of casualties. 
  • US President Joe Biden said that the Pentagon has shown evidence that Israel didn’t bomb the hospital in Gaza.
  • Risks of Iran’s intervention in the Israel-Palestine conflict escalated after Biden said that the US stands with Israel and promised to deliver whatever it needs to defend itself against Hamas.  
  • Joe Biden announced $100 million aid for civilians in Gaza citing that, “This money will support over 1 million displaced and conflict-affected Palestinians. And we will have mechanisms in place so this aid reaches those in need – not Hamas or terrorist groups.”
  • The US Treasury imposed sanctions on Hamas members to squeeze revenues for supporting military activities.
  • Robust demand for Gold is expected to remain intact due to the Middle East conflict, but investors should be prepared for a volatile action ahead of the speech from Federal Reserve Chair Jerome Powell at 16:00 GMT.
  • Considering the fact that Fed policymakers have recently signaled the need to keep interest rates unchanged at the 5.25%-5.50% range due to multi-year high US Treasury yields, Powell could reiterate the need to keep interest rates higher for longer.
  • Jerome Powell may not endorse the requirement of further policy tightening as more interest rate hikes could push the United States economy into a recession.
  • Fed policymakers have been suggesting that higher bond yields are sufficient to build pressure on inflation by reducing overall spending and investment.
  • The progress in inflation easing toward 2% has slowed as the US economy remains resilient. Strong labor demand and steady wage growth have strengthened the consumer spending momentum, but easing underlying inflation would refrain the need for further policy-tightening.
  • On Wednesday, Fed Governor Christopher Waller emphasized the need to analyze the economic data to understand whether higher interest rates are slowing inflation or the strong US economy continues to ramp up consumer prices.
  • The US Dollar remains firm ahead of Powell’s speech as investors anticipate the Fed chair to advocate for keeping interest rates higher for longer.
  • The Fed’s Beige Book released on Wednesday showed that economic activity remained almost unchanged in September. Loan demand declined modestly while credit quality remains healthy. The data also showed that some heat has been released from the tight labor demand as employers were hiring less urgently.

Technical Analysis: Gold price oscillates inside Wednesday’s range

Gold price trades inside Wednesday’s range as investors shift focus to Jerome Powell’s speech, which will provide guidance on interest rates. The precious metal stabilizes above the 200-day Exponential Moving Average (EMA), which trades around $1,910.00, indicating bullish long-term trend. Momentum oscillators have also shifted into the bullish range, indicating more upside ahead.

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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