Gold turns subdued, Middle East tensions keep broader safe-haven bid firmer

Gold price discovered support near $1,970.00 as demand for safe-haven assets remains intact.
Investors shift focus to the US Q3 GDP data that will provide an undertone for the Fed’s interest rate outlook.
Fed policymakers are consistently supporting keeping interest rates unchanged.

Gold price (XAU/USD) recovered after a corrective move from the psychological resistance that was inspired by rising long-term US Treasury yields. The precious metal aims to recapture a five-week high as Israel-Palestine tensions keep the fears of widening Middle East conflict persistent. The 10-year US Treasury yields jumped to a multi-year high of 5% amid expectations of firmer US economic data, which will be published this week.

Investors will keenly watch for the growth rate in the July-September quarter, which will set the undertone for interest rates by the year-end. An upbeat growth rate would demonstrate strong labor market conditions, robust consumer spending, and a recovery in economic activities despite tight monetary policy by the Federal Reserve (Fed).

Daily Digest Market Movers: Gold price awaits US S&P Global PMI data

Gold price finds intermediate support after correcting to near $1,965.00 as escalating Middle East tensions keep the safe-haven demand firmer.
Rising tensions between Israel and Palestine have escalated fears of a wider conflict in the Middle East.
The potential ground invasion plan of the Israeli army would strengthen after humanitarian aid to Gaza civilians and the safe release of hostages.
Fears of Iran's intervention in the Israel-Palestine conflicts remain firm amid expectations of sanctions on Palestine and Iran to squeeze revenue for funding the Hamas military.
The precious metal witnessed selling pressure after registering a fresh five-month high near the psychological resistance of $2,000.00 as investors shifted focus to the economic data, which will be released this week.
Rising long-term US Treasury yields built some pressure on the Gold price as investors saw strong numbers from the Q3 Gross Domestic Product (GDP), preliminary S&P Global PMIs for October and core Personal Consumption Expenditure (PCE) price index data for September.
The Manufacturing PMI for October is seen remaining below the 50.0 threshold for the 12th time in a row. Also, the Services PMI is seen marginally below 50.0, demonstrating the impact of higher interest rates by the Federal Reserve.
This week, the major focus will be on the July-September GDP data, which will be published on Thursday. As per the estimates, economists see the annualized growth rate at 4.1% against the former reading of 2.1%. An upbeat GDP data would keep hopes of one more interest rate increase in the remaining year of 2023 alive.
As per the CME Fed watch tool, traders see the Fed keeping interest rates unchanged at 5.25-5.50% almost certain. The odds of one more interest rate increase in any of the two remaining monetary policy meetings in 2023 remain around 24%.
The US Dollar trades in a narrow range above the immediate support of 106.00 as investors see GDP data for fresh guidance on interest rates.
Last week, the commentary from Fed policymakers kept the US Dollar on the tenterhooks. Cleveland Fed Bank President Loretta Mester said that the Fed is at or near the peak of interest rates. She further added that policymakers need to be “nimble” amid current economic uncertainties.
Atlantic Fed Bank President Raphael Bostic, in an interview with CNBC, said that a slowdown is coming due to higher interest rates but the economy won’t see a recession. Bostic remains confident that the central bank will get inflation under control. He forecasted that the Fed would cut interest rates in late 2024.

Technical Analysis: Gold price juggles around $1,980

Gold price recovers after a corrective move to near $1,970.00 and is expected to recapture the five-month high near $2,000.00. The precious metal recorded significant gains for two weeks. A bull cross, represented by the 20 and 50-day Exponential Moving Averages (EMAs), warrants more upside ahead. Momentum oscillators shift into the bullish range, indicating that the upside momentum has been activated.

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.

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