Gold price consolidates amid focus on Powell speech, Israel-Hamas conflict
- 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 Fed Powell's speech
- 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 drops despite lower-than-anticipated weekly jobless claims. The US Department of Labor reported that individuals claimed jobless benefits for the first time in the week ending October 13 were at 198K, lower than expectations of 212K and the former release of 211K.
- 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 trades back and forth around $1,950
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 a bullish long-term trend. Momentum oscillators have also shifted into the bullish range, indicating more upside ahead.
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.
