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Gold remains depressed near weekly low amid expectations for hawkish Fed outlook

November 1, 2023| Forex Market


  • Gold price drifts lower for the third successive day and refreshes weekly low on Wednesday.
  • Receding safe-haven demand and hawkish Fed expectations continue to weigh on the metal.
  • China’s economic woes could lend support to the safe-haven metal ahead of the Fed decision.

Gold price (XAU/USD) extends the previous day’s retracement slide from the vicinity of a five-and-half-month peak touched last week and continues losing ground for the third successive day on Wednesday. The precious metal maintains its offered tone heading into the European session and currently trades near the weekly low, around the $1,978 region. Easing concerns over the Israel-Hamas war, along with anticipation of a hawkish Federal Reserve (Fed), turn out to be key factors weighing on the non-yielding yellow metal.

The downside for the Gold price, however, is likely to remain limited as the market focus remains glued to the outcome of the highly-anticipated two-day FOMC monetary policy meeting, scheduled to be announced later during the US session. Apart from this, concerns about China’s fragile economic recovery at the start of the fourth quarter could lend support to the safe-haven metal and help limit deeper losses. This, in turn, warrants some caution before confirming that the XAU/USD has topped out in the near term.

Daily Digest Market Movers: Gold price continues losing ground ahead of the crucial FOMC policy decision

  • Gold price registered its biggest monthly rise since November 2022, albeit kicks off the new month on a weaker note in the wake of receding safe-haven demand.
  • Traders are pricing in a lower risk premium from the Israel-Hamas war as no other Arab powers have joined in so far; Hamas said it will free foreign hostages in the next few days.
  • The World Gold Council (WGC) said on Tuesday that high prices could dampen Gold demand in India and lead to the lowest purchase in three years during the peak festive season.
  • The WGC added that central banks Gold buying fell short of the Q3’22 record, while jewellery demand softened slightly in the face of high prices and the investment picture was mixed.
  • The US Dollar sticks to a positive bias on the back of expectation for any hawkish surprises from the highly-anticipated two-day FOMC monetary policy meeting.
  • The Federal Reserve is scheduled to announce its decision later during the US session and is widely anticipated to hold rates steady at a 22-year high for the second straight time.
  • The US economic resilience and still sticky inflation should allow the central bank to maintain its hawkish stance and leave the door open for more interest rate hikes.
  • The yield on the benchmark 10-year US government bond remains close to the 5% mark, or a 16-year top touched in October and further seems to underpin the US Dollar.
  • A Caixin-sponsored survey showed that business activity in China’s manufacturing sector contracted in October for the first time in three months.
  • This suggests that stimulus efforts from China only provided limited support to the fragile economic recovery and could lend support to the XAU/USD.

Technical Analysis: Gold price is unlikely to witness any meaningful corrective decline in the near-term

From a technical perspective, the ongoing decline might still be categorized as a corrective pullback, especially after a steep rise of over 10% from the October swing low. Moreover, the Relative Strength Index (RSI) on the daily chart has eased from the overbought territory. Hence, any subsequent fall might still be seen as a buying opportunity and remain limited. The $1,970 area is likely to protect the immediate downside, below which the Gold price could drop to last week’s swing low, around the $1,954-$1,953 region.

On the flip side, the Asian session peak, around the $1,986 area, now seems to act as an immediate hurdle ahead of the $2,000 psychological mark and the $2,007-2,009 region, or the multi-month top. A sustained strength beyond the latter should pave the way for an extension of over a three-week-old strong bullish trend and lift the Gold price to the next relevant barrier near the $2,022 zone.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Japanese Yen.

USD   0.06% 0.02% 0.00% -0.03% -0.09% -0.01% -0.05%
EUR -0.07%   -0.04% -0.04% -0.10% -0.15% -0.08% -0.10%
GBP -0.01% 0.05%   0.00% -0.06% -0.11% -0.05% -0.06%
CAD 0.00% 0.06% 0.03%   -0.04% -0.08% -0.02% -0.04%
AUD 0.04% 0.09% 0.06% 0.02%   -0.06% 0.02% 0.00%
JPY 0.09% 0.15% 0.13% 0.09% 0.07%   0.08% 0.09%
NZD 0.01% 0.08% 0.05% 0.04% -0.01% -0.06%   -0.02%
CHF 0.04% 0.09% 0.06% 0.03% 0.00% -0.07% 0.02%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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