Gold hovers near three-week low as Middle East tensions fade, Powell speech eyed

Gold price faces a sell-off as investors remain cautious over the speech from Fed Powell.
The majority of Fed policymakers have advised waiting for more data for a fresh outlook on interest rates.
The US Dollar could rebound as global slowdown fears escalate.

Gold price (XAU/USD) falls further as upside risks of Middle East tensions ease. The precious metal remains on the backfoot as market participants expect conflicts to remain contained between Israel and Palestine. Along with fading Middle East conflicts, caution over the interest rate outlook from the Federal Reserve (Fed) has dampened appeal for the Gold.

Investors are waiting for Federal Reserve Chairman Jerome Powell’s guidance on the monetary policy meeting in December and the outlook on the economy. Fed Powell is expected to maintain the stance of keeping current interest rates higher for a longer period as cracks appear in the US job market that could restrict inflation expectations. Jerome Powell could warn for more rate hikes in case progress in inflation returns to 2% slows.

Daily Digest Market Movers: Gold price prints a fresh three-week low

Gold price tests territory below the crucial support of $1,950 as market participants hope that Middle East tensions will remain contained between Israel and Palestine.
The delay in ground invasion plans by the Israeli Defense Forces (IDF) in Gaza, for the safe delivery of humanitarian aid and to ensure safe passage for hostages, has also diminished the appeal for Gold.
On Tuesday, Federal Reserve Governor Lisa Cook warned about escalating geopolitical tensions, which could deepen the slowdown in Europe and China and its cascading effects could impact the US economy too.
Lisa Cook further warned that these geopolitical tensions could destabilize commodity markets and access to credit in the current higher interest rate environment.
This week, the Gold price closed negative for straight three trading sessions and is expected to remain vulnerable.
The majority of Fed policymakers in their commentaries have advised to wait for the release of key economic data before arriving at a conclusion.
Philadelphia Federal Reserve President Patrick Harker said that the next decision from the central bank could go either way, depending on economic data. Harker added that the Fed will keep interest rates ‘higher for longer’ and there are no signs of rate cuts in the near term.
While discussing the labor market and inflation outlook, Patrick Harker commented that the Unemployment Rate would rise to 4.5% in 2024 before falling and inflation will come down to 3% in 2024.
Minneapolis Federal Reserve Bank President Neel Kashkari and Federal Reserve Governor Michelle Bowman support raising rates as the resilient US economy could result in an uptick in price pressures.
On the contrary, Chicago Federal Reserve President Austan Goolsbee said that the progress in inflation returning towards 2% is decent and inflation would decline significantly in the next two months.
Austan Goolsebee said that discussions over how far interest rates should be hiked will likely fade and be substituted by how long interest rates should remain high.
Further action in the US Dollar, bullions, and bond market are likely to be guided by the speech from Fed Chair Jerome Powell. The guidance on interest rates and commentary on the economic outlook from Powell will be keenly watched.
On Wednesday, Jerome Powell, in his prepared remarks, didn’t comment on monetary policy and the economic outlook.
Meanwhile, the US Dollar Index (DXY) consolidates in a narrow range around 105.50. The USD index could resume upside as fears of a slowdown in the global economy have accelerated. The Chinese economy deflated in October due to weak consumer spending and a surprise slump in factory data.
The US Department of Labor has reported that jobless claims remained almost unchanged for the week ending Nov 3. Individuals claiming jobless benefits for the first time dropped to 217K, against expectations of 218K and the former reading of 220K.

Technical Analysis: Gold price hovers near $1,950

Gold price continues its three-day losing streak as investors remain cautious ahead of Powell’s commentary on interest rates. The Gold price corrects further below the 20-day Exponential Moving Average (EMA) but is likely to find support near the 50-day EMA, which trades near $1,935.00. Momentum oscillators indicate that the bullish impulse has faded but the broader trend is still upbeat.

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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