Gold remains choppy as yields ease after unchanged Fed policy

Gold price trades sideways as uncertainty about the interest rate outlook persists.
The Fed kept interest rates unchanged but left doors open for further policy tightening.
Unlike other G7 economies, the US remains resilient on the grounds of a strong labor market and upbeat consumer spending.

Gold price (XAU/USD) struggles to find a direction despite the subdued S&P Global preliminary PMI report for September. The Manufacturing PMI landed at 48.0 in line with expectations and slightly higher than the former reading of 47.9. The economic data has been contracting from a long period, a figure below 50.0 is itself considered as contraction in economic activities. The Services PMI, which tracks a sector that accounts for two-thirds of the US economy, dropped to 50.2 vs. expectations of 50.6 and the former release of 50.5.

Meanwhile, investors remain uncertain about the interest rate peak after the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. The precious metal trades inside Thursday’s range as the upside is restricted due to the US economic resilience, which has been keeping expectations alive over one more interest rate increase from the Fed. On the downside, Gold also looks well supported due to consistently falling core inflation.

While the US economy has remained strong on the grounds of labor demand, wage growth, services sector activity, and consumer spending, the country’s manufacturing sector has remained a major concern. US factory activity has been contracting for a long time, and further pressure cannot be ruled out as firms aim to control costs through lower inventory backup to avoid higher working capital requirements.

Daily Digest Market Movers: Gold price remains muted despite subdued S&P Global PMIs

Gold price rebounds to near $1,925.00 as investors see pain in the global economy on expectations that central banks will keep interest rates higher for longer.
The precious metal attempted a recovery despite resilient US Dollar and Treasury yields as the Federal Reserve (Fed) is expected to keep interest rates unchanged for the remainder of the year.
As per the CME Fedwatch tool, traders see a 71% chance for interest rates remaining steady at 5.25%-5.50% in the November monetary policy meeting.
However, Fed policymakers delivered a hawkish interest rate outlook, hinting at one more interest rate increase of 25 basis points (bps), which will push interest rates to 5.50%-5.75%.
Fed policymakers may continue favoring a steady monetary policy as core inflation is consistently falling and a recent rise in gasoline prices will likely have a limited impact on overall inflationary pressures.
While higher interest rates from the Fed are easing inflationary pressures, investors shift focus on the economic data, which will set a base for upcoming monetary policy meetings.
US economic conditions, particularly steady employment and wage growth as well as upbeat consumer spending, may keep excess inflation over the desired rate of 2% extremely stubborn.
The Bank of America (BofA) is optimistic about the US economic outlook on strong consumer spending momentum, lowering the chances of a recession.
In the monetary policy announcement on Wednesday, Fed policymakers said that the US economy is withstanding higher borrowing costs.
Fed policymakers are interested in keeping interest rates sufficiently high for longer to bring inflation down. According to their projections, benchmark rates will stay above 5% next year and end 2025 at almost 4%. Fed members expect inflation to be under control in 2026, but interest rates are expected to be well above pre-pandemic levels.
US equities could come under pressure as higher interest rates for a longer period could dent economic growth.
The upside in the US Dollar Index (DXY) remains restricted as investors await the preliminary S&P Global Manufacturing and Services PMIs for September, which will be published at 13:15 GMT.
The Manufacturing PMI is expected to improve marginally to 48.0 from August’s reading of 47.9. The Services PMI, which tracks a sector that accounts for two-thirds of the US economy, is anticipated to rise to 50.6 from 50.5 in August.
The US Manufacturing PMI has come in below 50 for many months, signaling that the country’s factory activity has been contracting for a long period as firms are working on achieving efficiency through controlling costs in building inventories. Producers are operating at lower capacity due to a bleak demand outlook.
The US Dollar may continue to enjoy higher appeal as other G7 economies are facing risks of a slowdown due to an inability to absorb the consequences of restrictive interest rate policy.

Technical Analysis: Gold price eyes $1,930

Gold price recovers after a correction to near $1,915.00. The precious metal trades inside Thursday’s range around $1,925.00. The broader trend is sideways amid uncertainty over the interest rate peak. The precious metal is consistently taking support near the 200-day Exponential Moving Average (EMA) at $1,910.00, exposed to further downside as investors are using the pullbacks as selling opportunities.

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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