- Gold price remains sideways as US PCE core inflation remained in line with estimates.
- The fall in the price of Gold continues to be cushioned by the escalation of tensions in the conflict between Israel and Palestine.
- Yellen sees Treasury yields elevated on the Fed’s outlook for “higher for longer” interest rates.
The price of Gold (XAU/USD) is trading within a tight range around $1,990 as declines are cushioned by escalating tensions in the Middle East, while gains are capped by more optimistic US economic data, particularly strong GDP. Third quarter Gross Domestic Product (GDP) and durable goods orders. The precious metal fails to act decisively despite the publication of core Personal Consumption Expenditure (PCE) core inflation data.
The US Bureau of Economic Analysis (BEA) reported that monthly core PCE inflation grew 0.3% in September, as market participants expected, compared to 0.1% growth in August. On an annual basis, core PCE inflation increased by 3.7%, as expected, but remained below the 3.9% increase recorded in August.
The sluggishness of the Fed’s preferred inflation indicator appears insufficient to dent expectations of a firm interest rate decision by the Federal Reserve (Fed) at its next monetary policy meeting, scheduled for November 1, as that long-term US bond yields have risen sharply.
The dollar and long-term bond yields rebounded strongly following the success of the GDP numbers, as the data shows the resilience of the US economy. The phenomenal GDP growth is consistent with the “soft landing” scenario envisioned by the Fed in its fight against stubborn inflation. However, Gold price upside could remain limited as US Treasury yields could remain elevated for a long time amid the Fed’s “higher interest rates for longer” plan.
Daily Market Movement Summary: Gold price fails to find direction despite underlying PCE reporting negative trend
- The price of Gold consolidates around $1,990.00, while tensions between Israel and Palestine continue to serve as support.
- The Israeli army briefly entered Gaza to carry out a ground raid. Additionally, a senior Hamas official has urged its allies to intervene in the ongoing conflict to defend Gaza from a full-scale invasion by Israeli troops.
- Risks remain that Iran-backed Hezbollah will intervene in the Israel-Palestine war, as Western countries have been supporting Israel.
- Gold price faced selling pressure around $1,990 on Thursday following upbeat US GDP data and durable goods orders, but managed to hold 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, missing growth expectations of 4.2% and doubling the 2.1% rate seen in the second trimester.
- The strength of the U.S. economy in the third quarter was driven by strong consumer spending in a tight labor market, rising residential investment and high government spending.
- Consumer Spending grew 4% in the July-September quarter, compared to 0.8% in the second quarter.
- However, US GDP reported that business investment contracted for the first time in two years, as companies postponed capacity expansion due to rising borrowing costs. Businesses turned to stockpiles and efficiency to meet household demand.
- US durable goods orders data for September, also released on Thursday, pointed to a sharp rise in demand in the US manufacturing sector.
- New orders for durable goods rose 4.7%, compared to expectations of 1.5%. In August, orders contracted marginally by 0.1%.
- Following the release of the GDP data, US Treasury Secretary Janet Yellen stated in an interview with Bloomberg that the strong GDP numbers point to a “soft landing,” but that these strengths will also keep bond yields elevated. .
- Janet Yellen said high US bond yields reflect strong confidence in the US economy and indicate that interest rates will stay higher for longer.
- The US Dollar Index (DXY) appears headed for a positive weekly close, but retreated from a two-week high of 106.90 on Friday.
Technical Analysis: The price of Gold is trading sideways below $1,990
Gold price returns below the resistance of $1,990.00. The precious metal is trading within Thursday’s range, as investors await the US core PCE reading, which will provide some clues 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 EMA higher, showing a short-term bullish trend.
Frequently asked questions about the Fed
What does the Federal Reserve do and how does it affect the US dollar?
Monetary Policy in the US is determined by the Federal Reserve (Fed). The Fed has two mandates: achieving price stability and promoting full employment. Your main tool to achieve these goals is to adjust interest rates.
When prices rise too quickly and inflation exceeds the 2% target, the Fed raises interest rates, raising borrowing costs throughout the economy. The result is a stronger dollar, as it makes the United States a more attractive place for international investors.
When Inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates to encourage borrowing, which weighs on the Dollar.
How often does the Fed hold monetary policy meetings?
The Federal Reserve (Fed) holds eight monetary policy meetings a year, in which the Federal Open Market Committee (FOMC) evaluates the economic situation 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 eleven presidents of the remaining regional Reserve Banks, who serve for a period of time. year on a rotating basis.
What is Quantitative Easing (QE) and how does it affect the USD?
In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a clogged 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 of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE usually weakens the US Dollar.
What is Quantitative Tightening (QT) and how does it affect 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 of maturing bonds to buy new bonds. It is usually positive for the value of the US Dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
