Gold plunges on upbeat US factory activities, Fed Powell's speech awaited

Gold price refreshes six-month low to $1,833.00 as US Treasury yields extend upside.
A soft US core PCE report has trimmed consumer inflation expectations.
Fed’s Williams sees interest rates near their peak as the labor market imbalance declines.

Gold price (XAU/USD) is expected to decline further as the United States Institute for Supply Management (ISM) Manufacturing PMI reported better-than-anticipated Manufacturing PMI for September. The economic data landed at 49.0, much higher than estimates and the former release of 47.7 and 47.6 respectively. In spite of upbeat factory activities, the Manufacturing PMI remained below the 50.0 threshold for the 10th time in a row. A figure below the 50.0 threshold is considered as a contraction in economic activities.

The yellow metal has been facing an intense sell-off despite Friday’s soft core Personal Consumption Expenditures (PCE) inflation vanishes odds of a hawkish interest rate decision from the Federal Reserve (Fed) in the November monetary policy meeting. The precious metal struggles for a firm footing as Treasury yields continue their bullish run as the Fed is expected to stick to the ‘higher for longer’ stance in interest rates.

The US Dollar aims to recapture the 11-month high near 106.80 as the market mood remains risk-off due to weak Caixin Manufacturing PMI data,

Daily Digest Market Movers: Gold price remains under pressure on upbeat PMI

Gold price continues a five-day losing spell to near $1,840.00 in the context of ‘higher for longer’ interest rates by the Federal Reserve to tame the so-called ‘last leg’ of inflation.
The yellow metal is expected to extend downside as the US Manufacturing PMI outperformed expectations. The economic data landed at 49.0, much higher than estimates and the former release of 47.7 and 47.6 respectively. Also, the New Orders Index jumped to 49.2 from the August reading of 46.8.
The precious metal also faces pressure from higher US Treasury yields, which have jumped to near 4.63% as Fed policymakers still favor more interest rates to ensure price stability.
New York Fed Bank President John C. Williams said on the weekend that the Fed is at or near peak levels of interest rates. Williams sees signs of inflation pressures waning and labor market imbalance diminishing.
The yellow metal failed to find bids on Friday despite a soft PCE report, which is majorly used by the Fed for policy decision-making.
Monthly Core PCE grew at a nominal pace of 0.1%, slower than expectations and the former pace of 0.2%. The annual core PCE data decelerated to 3.9% as expected against July's reading of 4.3%. The headline PCE expanded at a higher pace of 0.4% against July's reading of 0.2% but slower than expectations of 0.5%. On an annual basis, PCE inflation accelerated to 3.5% as expected due to rising energy prices.
A soft core PCE inflation report has decreased the chances of one more interest rate hike from the Fed before the year ends. As per the CME Group Fedwatch tool, investors price in that interest rates will remain steady at 5.25%-5.50% at the November monetary policy. Meanwhile, chances for interest rates remaining unchanged at 5.25%-5.50% until the end of 2023 dropped to 56%.
A slowdown in consumer spending on core goods has eased consumer inflation expectations, making Fed policymakers comfortable in holding interest rates.
On a broader note, the US economy is resilient due to a stable labor demand, upbeat wage growth, and robust retail demand, which would keep hopes for a rebound in inflation intact and Gold price on the back foot.
The market mood improves as the US government manages to ditch a government shutdown in a last-minute deal. The agreement between the US House and Senate approved a funding bill until November 17.
China’s new home prices rose slightly after declining for four months as home-builders ramped up property selling, capitalizing on supportive measures from China’s government and expansionary monetary policy by the People’s Bank of China (PBoC).
Improved market sentiment is restricting recovery in the US Dollar index (DXY). The USD Index aims to stabilize above the 106.00 resistance as global slowdown fears persist.

Technical Analysis: Gold price hovers near fresh six-month low of $1,833

Gold price weakens after a bearish crossover by the 20-day and 200-day Exponential Moving Averages (EMAs). The precious metal sticks to the fresh six-month low near $1,840.00 and is expected to extend its downside journey towards the crucial support at $1,800.00. Momentum oscillators shift into a bearish trajectory, warranting more downside.

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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