- Gold price faces a sell-off as investors remain cautious over the speech from Fed Powell.
- The majority of Fed policymakers have advised waiting for more data for a fresh outlook on interest rates.
- The US Dollar could rebound as global slowdown fears escalate.
Gold price (XAU/USD) falls further as upside risks of Middle East tensions ease. The precious metal remains on the backfoot as market participants expect conflicts to remain contained between Israel and Palestine. Along with fading Middle East conflicts, caution over the interest rate outlook from the Federal Reserve (Fed) has dampened appeal for the Gold.
Investors are waiting for Federal Reserve Chairman Jerome Powell’s guidance on the monetary policy meeting in December and the outlook on the economy. Fed Powell is expected to maintain the stance of keeping current interest rates higher for a longer period as cracks appear in the US job market that could restrict inflation expectations. Jerome Powell could warn for more rate hikes in case progress in inflation returns to 2% slows.
Daily Digest Market Movers: Gold price drops further as Middle East tensions fade
- Gold price tests territory below the crucial support of $1,950 as market participants hope that Middle East tensions will remain contained between Israel and Palestine.
- The delay in ground invasion plans by the Israeli Defense Forces (IDF) in Gaza, for the safe delivery of humanitarian aid and to ensure safe passage for hostages, has also diminished the appeal for Gold.
- On Tuesday, Federal Reserve Governor Lisa Cook warned about escalating geopolitical tensions, which could deepen the slowdown in Europe and China and its cascading effects could impact the US economy too.
- Lisa Cook further warned that these geopolitical tensions could destabilize commodity markets and access to credit in the current higher interest rate environment.
- This week, the Gold price closed negative for straight three trading sessions and is expected to remain vulnerable.
- The majority of Fed policymakers in their commentaries have advised to wait for the release of key economic data before arriving at a conclusion.
- Philadelphia Federal Reserve President Patrick Harker said that the next decision from the central bank could go either way, depending on economic data. Harker added that the Fed will keep interest rates ‘higher for longer’ and there are no signs of rate cuts in the near term.
- While discussing the labor market and inflation outlook, Patrick Harker commented that the Unemployment Rate would rise to 4.5% in 2024 before falling and inflation will come down to 3% in 2024.
- Minneapolis Federal Reserve Bank President Neel Kashkari and Federal Reserve Governor Michelle Bowman support raising rates as the resilient US economy could result in an uptick in price pressures.
- On the contrary, Chicago Federal Reserve President Austan Goolsbee said that the progress in inflation returning towards 2% is decent and inflation would decline significantly in the next two months.
- Austan Goolsebee said that discussions over how far interest rates should be hiked will likely fade and be substituted by how long interest rates should remain high.
- Further action in the US Dollar, bullions, and bond market are likely to be guided by the speech from Fed Chair Jerome Powell. The guidance on interest rates and commentary on the economic outlook from Powell will be keenly watched.
- On Wednesday, Jerome Powell, in his prepared remarks, didn’t comment on monetary policy and the economic outlook.
- Meanwhile, the US Dollar Index (DXY) consolidates in a narrow range around 105.50. The USD index could resume upside as fears of a slowdown in the global economy have accelerated. The Chinese economy deflated in October due to weak consumer spending and a surprise slump in factory data.
Technical Analysis: Gold price extends losing streak to near $1,950
Gold price continues its three-day losing streak as investors remain cautious ahead of Powell’s commentary on interest rates. The Gold price corrects further below the 20-day Exponential Moving Average (EMA) but is likely to find support near the 50-day EMA, which trades near $1,935.00. Momentum oscillators indicate that the bullish impulse has faded but the broader trend is still upbeat.
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.