Gold declines on strong US GDP, Middle East tensions keep near-term appeal firmer

Gold price slips sharply on upbeat US Q3 GDP and Durable Goods Orders data.
The demand for US Dollar and bond yields remains stable as the US economy grew by 4.9% in Q3.
US Durable Goods Orders rose by 4.7% against expectations of 1.5%.

Gold price (XAU/USD) drops vertically from a fresh three-day high as the United States Bureau of Economic Analysis (BEA) has reported that the US economy expanded at an annualized rate of 4.9% in the July-September quarter after the 2.1% expansion recorded in the second quarter's GDP report. Investors forecasted that the US economy grew by 2.1% in the third quarter of 2023.

Apart from the GDP data, the Durable Good Orders have also been released. The US Census Bureau has reported that new orders for core goods grew at a robust pace of 4.7% in September against expectations of 1.5%. In August, the Durable Goods Orders were contracted by 0.1%. An upbeat GDP report could result in a notable increase in bond yields and the US Dollar as it elevates the odds of one more interest rate increase from the Fed in the remainder of 2023.

Meanwhile, the US Department of Labor has also reported weekly Jobless Claims data for the week ending October 20. The agency reported that individuals claiming jobless benefits for the first time rose to 210K, against expectations of 208K and the former release of 200K.

The near-term appeal for the Gold price is still upbeat as Israeli Prime Minister Benjamin Netanyahu has confirmed that their army is prepared for the ground assault in Gaza

On a broader note, the Gold price is holding gains despite a surge in the US Dollar and long-term US bond yields following strong US business activity in October. Meanwhile, investors await the US core Personal Consumption Expenditure (PCE) inflation data for September, which carries the potential to impact the decision-making of the Fed in its monetary policy meeting scheduled for November 1.

Daily Digest Market Movers: Gold price extends downside on upbeat US data

Gold price falls to near $1,970.00 from a three-day high near $1,990.00 after the release of the stronger-than-anticipated US GDP for the third quarter of 2023 and Durable Goods Orders data for September.
The broader safe-haven demand remains firm as the statement from Israeli Prime Minister Benjamin Netanyahu escalated fears of a ground assault in Gaza.
The tensions in the Middle East have escalated as Benjamin Netanyahu said that the army is preparing for the ground attack but won’t share the exact timing or strategy.
Netanyahu said that the military’s goal is to save their nation from Hamas. He clarified that the ground assault to destroy Palestine's military troops would start soon.
The US Dollar Index (DXY) aims to climb above the immediate resistance of 106.80 as the US GDP report for the July-September quarter has shown that the US economy is resilient while 10-year US TReasury yields edge down to 4.91%.
The US Dollar is in the bullish trajectory after a private sector survey from S&P Global showed that business activities in the US economy remained upbeat in October despite higher interest rates by the Federal Reserve.
The US business activity survey showed that the private sector Manufacturing PMI tested the 50.0 threshold for the first time in six months. An uptick in the US factory activity at the start of the last quarter of 2023 is good news for the economy.
S&P Global reported that business sentiment has improved on hopes that the Fed is done with hiking interest rates amid easing price pressures.
The appeal of the US Dollar improved as investors pare investments in risk-sensitive assets due to escalated global slowdown fears.
Considering recent statements from Fed policymakers, a steady interest rate decision is widely anticipated from the Fed in its monetary policy meeting on November 1. A majority of Fed policymakers along with Chair Jerome Powell commented that at this time high US bond yields are equivalent to one interest rate hike of 25 basis points (bps).
As per the CME Fedwatch 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 have increased to 29%.

Technical Analysis: Gold price drops to near $1,970

Gold price faces selling pressure from a three-day high of $1,990 after stronger US GDP and Durable Goods Orders data. The precious metal drops after failing to capture the psychological resistance of $2,000. However, the near-term trend is bullish as the 20 and 50-day Exponential Moving Averages (EMAs) have delivered a bull cross. Momentum oscillators trade in a bullish range, which indicates that the upside momentum is intact.

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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