Gold price steadies amid sticky US core PCE, Middle East tensions
- Gold price continued to consolidate after the US core PCE inflation reading remained in line with estimates.
- The downside in the Gold price remains cushioned by escalating tensions in the Israel-Palestine conflict.
- US Yellen sees Treasury yields elevated on Fed’s “higher for longer” interest rates outlook.
Gold price (XAU/USD) trades back and forth below $1,990 as the downside is cushioned by escalating Middle East tensions while the upside is limited by more upbeat US economic data, namely robust Q3 Gross Domestic Product (GDP) and Durable Goods Orders. The precious metal failed to deliver a decisive action despite the release of the sticky Core Personal Consumption Expenditure (PCE) inflation data.
The US Bureau of Economic Analysis (BEA) reported that Monthly core PCE inflation grew by 0.3% in September as expected by the market participants against the 0.1% growth recorded in August. On an annual basis, core PCE inflation rose by 3.7% as forecasted but remained lower than the 3.9% increase in August.
A sticky Fed's preferred inflation gauge seems insufficient to dent expectations of a steady interest rate decision from the Federal Reserve (Fed)in its upcoming monetary policy meeting, scheduled for November 1 as US long-term bond yields are significantly higher.
The US Dollar and long-term bond yields recovered sharply after blockbuster GDP numbers as the data shows resilience in the US economy. The phenomenal GDP growth aligns with the “soft landing” scenario envisaged by the Fed in its battle against stubborn inflation. Still, the upside in the Gold price could remain restricted as US Treasury yields may remain elevated for a long amid the Fed’s “higher for longer interest rates” plot.
Daily Digest Market Movers: Gold price juggles as focus shifts to Fed policy
- Gold price consolidates around $1,990.00 as Israel-Palestine tensions continue to provide a cushion.
- The Israeli army entered Gaza briefly to carry out a ground raid. Furthermore, a senior official of Hamas has urged allies to intervene in the ongoing conflict to defend Gaza from a full-scale invasion from Israeli troops.
- The risks of Iran-backed Hezbollah’s intervention in the Israel-Palestine war persist as Western nations have been supporting Israel.
- Gold price faced selling pressure near $1,990.00 on Thursday after upbeat US GDP and Durable Goods Orders data, but managed to firm amid geopolitical tensions.
- The US BEA reported that the US economy grew at a stronger pace of 4.9% in the July-September quarter on an annualized basis, against expectations of 4.2% growth and doubling the 2.1% rate seen in the second quarter.
- US economic strength in the third quarter was driven by robust consumer spending amid a tight labor market, rising residential investment, and high government spending.
- Consumer spending grew by 4% in the July-September quarter against a 0.8% reading in the second quarter.
- Still, the US GDP report showed that business investment contracted for the first time in two years as firms postponed capacity expansion due to higher borrowing costs. Firms relied on inventory backlog and achieving efficiency to cater to households’ demand.
- US Durable Goods Orders data for September, also released on Thursday, pointed to sharply increasing demand ahead for the US manufacturing sector.
- New orders for durable goods rose 4.7% against expectations of 1.5%. In August, orders contracted marginally by 0.1%.
- After the release of the GDP data, US Treasury Secretary Janet Yellen said in an interview with Bloomberg that strong GDP numbers point to a “soft landing”, but that these strengths will also keep bond yields elevated.
- Janet Yellen said that high US bond yields reflect strong confidence in the US economy and indicate that interest rates will remain higher for a longer period.
- The US Dollar Index (DXY) looks set for a positive weekly closing but edges down on Friday from a two-week high of 106.90.
Technical Analysis: Gold price trades below $1,990
Gold price trades back and forth below the crucial resistance of $1,990.00. The precious metal is trading inside Thursday’s range as investors await the US core PCE reading, which will provide some cues about the Fed’s monetary policy action on November 1. The 20-day Exponential Moving Average (EMA) has crossed the 50-day and 200-day EMAs to the upside, portraying a bullish near-term trend.
Fed FAQs
What does the Federal Reserve do, how does it impact the US Dollar?
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
How often does the Fed hold monetary policy meetings?
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
What is Quantitative Easing (QE) and how does it impact USD?
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
What is Quantitative Tightening (QT) and how does it impact the US Dollar?
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
