Gold soars as Middle East tensions strengthen safe-haven demand

Gold price roars higher as Israel-Palestine conflict deepens.
The US Dollar consolidates, shrugging off robust US Retail Sales data for September.
10-year US Treasury yields rose to 4.85% on rising expectations of one more interest rate increase from the Fed.

Gold price (XAU/USD) extends its upside move as investors’ appeal for precious metals remains upbeat due to the deepening crisis in the Middle East. The precious metal delivered a breakout of the consolidation formed in a range of $1,909-$1,932 despite the fact that robust US Retail Sales data elevated expectations of one more interest rate hike from the Federal Reserve (Fed) for the remainder of 2023.

Demand for bullion rose significantly due to the escalating conflict between Israel and Palestine after the strike at a Gazan hospital. The hospital blast in Gaza resulted in hundreds of casualties, which has created room for an intervention by Iran. Earlier, Iran warned of a possible intervention if Israel appears for a ground assault. Meanwhile, US President Joe Bide remained 'loud and clear' that the US stands with Israel.

The US Dollar consolidates in a tight range ahead of the speech from Fed Chair Jerome Powell. It will be worth watching whether Jerome Powell reiterates the appropriateness of some further policy-tightening or will join other Fed officials who have supported the need to keep interest rates steady due to rising US bond yields.

Daily Digest Market Movers: Gold price strengthens ahead of Fed Powell's speech

Gold price aims to capture the crucial resistance of $1,950.00 as the appeal for bullions is upbeat amid escalating geopolitical tensions.
The Israel-Palestine conflict deepened on Wednesday after an explosion at a Gaza hospital killed almost 500 civilians.
Meanwhile, the visit of Biden to Jordan was canceled as civilian unrest increased after the blast in the hospital in Gaza.
The Gold price extended upside after US President Joe Biden blamed Palestine for the Gaza hospital blast. Joe Biden said that the US stands with Israel and will ensure Israel has what it needs to protect itself.
US Treasury has imposed sanctions on Palestine to root out sources of revenue for Hamas in the West Bank and Gaza.
Risks of intervention by other Middle East nations such as Iran remain persistent, which could disrupt the supply chains further.
The appeal for Gold price has improved significantly due to deepening Middle East tensions, which supported it to recover quickly on Tuesday despite the release of upbeat US Retail Sales data.
The US Census Bureau reported that Retail Sales rose by 0.7% due to robust demand for automobiles, rising dining out, and higher gasoline prices. Investors forecasted a growth rate of 0.3%. In August, Retail Sales grew by 0.8%. August's sales were upwardly revised from an initial estimate of 0.6%.
Retail Sales excluding automobile sales rose by 0.6% while investors anticipated a growth uptick of 0.2%.
Strong consumer spending seems backed by robust labor demand and steady wage growth, which could propel consumer inflation expectations and increase the chances of one more interest rate hike from the Federal Reserve (Fed).
Strong consumer spending in September despite headwinds of off-season and higher borrowing costs has set a positive undertone for the third quarter Gross Domestic Product (GDP) data.
The US Dollar Index (DXY) seems well-supported above the crucial level of 106.00, but it is failing to extend its upside trend as the majority of traders are still betting in favor of interest rates remaining unchanged.
As per the CME Group Fedwatch tool, traders see a 90% chance of the Fed keeping interest rates unchanged at 5.25%-5.50%. However, the odds of one more interest rate increase in any of the two remaining monetary policy meetings in 2023 have jumped to 38% from 30% recorded on Tuesday.
China’s Q3 GDP growth remained upbeat, fading expectations of a global slowdown and weighing on the safe haven USD.
China’s growth rate in the July-September quarter was recorded at 1.3%, much better than expectations of 1.0% and the 0.5% recorded in the second quarter of 2023. The annual GDP rose by 4.9% against the estimates of 4.4%.
Meanwhile, investors shift focus to the speech from Fed Chair Jerome Powell, which is scheduled for Thursday. The major focus will be on the interest rate guidance as other Fed policymakers have supported keeping interest rates unchanged at 5.25%-5.50% due to higher long-term US bond yields. The 10-year US Treasury yields rose to 4.85%.
San Francisco Fed President Mary Daly said this week that the recent surge in long-term bond yields is equivalent to one 25 basis points rate hike. The risk of lifting interest rates further could push the economy into a recession, she said.

Technical Analysis: Gold price jumps to $1,960

Gold price refreshes two-month high at $1,960.00 amid an escalating Israel-Palestine conflict. The precious metal is inches far from the four-week high around $1,947.00 after stabilizing above the 200-day Exponential Moving Average (EMA), which trades around $1,905.00. The yellow metal is expected to extend upside toward the crucial resistance of $1,950.00

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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