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Gold recovers some losses ahead of Fed decision, US labor market and factory data


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  • Gold price manages to recover some losses as the Fed is expected to keep interest rates unchanged.
  • The Fed may keep expectations of further policy tightening alive due to strong wage growth.
  • Middle East tensions keep the broader appeal for Gold bullish.

Gold price (XAU/USD) extended its two-day losing spell but recovered some losses ahead of the interest rate decision by the Federal Reserve (Fed), private payrolls, and the Institute of Supply Management (ISM) Manufacturing PMI data for October. The precious metal falls sharply even though markets widely expect that the Fed will keep interest rates unchanged in the 5.25%-5.50% range. However, a hawkish interest rate outlook is highly anticipated as robust spending by households and strong labor market conditions keep upside inflation risks alive.

Fed Chair Jerome Powell and his colleagues may keep the likelihood of further policy tightening on the table as the progress in inflation easing toward the 2% target has slowed due to strong wage growth. US households having high purchasing power are spending heavily, keeping the core Personal Consumption Expenditure (PCE) price index relatively stubborn.

Apart from the upcoming Fed decision, the broader appeal for Gold is still upbeat as Middle East tensions persist. The Israeli army is preparing for the ground incursion in Gaza as Israeli authorities rejected calls for a ceasefire. 

Daily Digest Market Movers: Gold price awaits Fed policy for further action

  • Gold price starts November on a cautious note as investors shift focus to the Federal Reserve’s monetary policy.
  • The Fed is expected to keep interest rates unchanged in the range of 5.25%-5.50%. Investors hope that higher US long-term bond yields and gradually declining price pressures will back the Fed to keep interest rates steady..
  • 10-year US Treasury yields have rebounded strongly to 4.91% on expectations that the Fed will keep interest rates higher for a significantly longer period. 
  • Fed policymakers said that higher US bond yields are sufficient to tighten financial conditions, dampening overall spending and investment.
  • Cleveland Fed Bank President Loretta Mester said ahead of the November monetary policy meeting that higher bond yields are equivalent to one interest rate hike of 25 basis points (bps). The Fed could use higher Treasury yields as a substitute for further policy tightening.
  • The Fed is expected to deliver hawkish guidance on interest rates as the US economy is resilient on the grounds of consumer spending, labor demand and wage growth. 
  • Fed Chair Jerome Powell and his colleagues could keep the possibility of further policy tightening high as inflation looks persistent in the near-term due to robust consumer spending and strong wage growth.
  • Jerome Powell said in his latest remarks that the current Fed policy rate is “fairly close” to the sufficiently restrictive level needed to ensure price stability over the medium term, but that the process of getting inflation down to 2% has a “long way” to go.
  • The US Dollar Index (DXY) consolidates near 106.80 ahead of the Fed’s policy meeting, ADP Employment Change and the ISM manufacturing PMI for September.
  • Economists expect that US private employers recruited 150K job seekers in October against 89K jobs added in September.
  • As for the ISM Manufacturing PMI, consensus points to a steady reading at 49.0. If consensus is right, the PMI will remain below the 50.0 threshold which separates expansion from contraction in factory activity. This would be the 12th straight contraction.
  • An upbeat labor and factory data would strengthen the appeal for the US Dollar and Treasury yields. Robust economic data would also allow Fed policymakers to keep interest rates elevated for a longer period.
  • On the geopolitical front, Hamas’ promise of releasing hostages in a few days has eased safe-haven bets marginally. Meanwhile, the Israeli Defence Forces (IDF) has expanded their ground attack against Hamas in the northern section of the Gaza strip.
  • The broader outlook for Gold is still upbeat as a ceasefire between Israel and Palestine is less likely, while fears of Iran’s intervention in the Middle East conflict remain high.

Technical Analysis: Gold price recovers above $1,980

Gold price faced an extended sell-off while attempting to stabilize above the psychological resistance of $2,000. The precious metal drops sharply on expectations that the Fed will keep the door open for further policy tightening. The yellow metal has been trading in a range between $1,960 and $2,010 for the past week. The gold price has discovered some support near $1,970.00 but a volatile action is widely anticipated after the Fed’s policy announcement. Momentum oscillators continue to trade in a bullish trajectory.

Fed FAQs

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.

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.

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.

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.