- Gold fell after Fed minutes revealed that a “substantial majority” supported a 50bps rate cut, while some supported a 25bps rate cut.
- According to the CME FedWatch tool, as expectations for a rate cut increase, the probability of a 25 basis points cut has fallen to 75.9%.
- The yield on the US 10-year Treasury note rose to 4.062%, supporting the US dollar.
- Traders are awaiting Thursday's CPI data for further direction on inflation and Fed policy.
Gold widened its decline for the sixth straight day after the US Federal Reserve released its September meeting minutes. A “substantive majority” of the Federal Open Market Committee (FOMC) supported a 50 basis point (bp) rate cut, according to minutes from the meeting. Nevertheless, XAU/USD is down more than 0.37% and trading within familiar levels around $2,610.
FOMC minutes showed that all participants supported a rate cut, but some officials wanted a 25 bps cut. In both cases, nearly all officials viewed the Fed's dual mandate as tilting inflation risks to the downside while risks to the labor market tilted upward.
Following this data, the CME FedWatch tool shows the probability of a 25bps rate cut has fallen to 75.9% from 85.2% a day earlier. This means some market participants believe the odds of the Fed keeping rates unchanged are 24.1%, up from 14.8% on Tuesday.
US Treasury yields continued to rise, with the US 10-year Treasury note rising 5.5 basis points to 4.062%. This supported the USD, according to the USD Index (DXY), which rose 0.42% to 102.90, its highest since mid-August 2024.
Traders' focus now shifts to Thursday's release of the U.S. Consumer Price Index (CPI). Estimates suggest that inflation will continue to decline. Still, a higher-than-expected inflation rate would increase the likelihood of a pause in the Fed's easing cycle.
This week's US economic schedule will feature US inflation, US jobs data, and Fed speakers.
Daily Digest Market Trends: Gold Prices Exceed US CPI by Several Minutes Due to FOMC Impact
- US CPI is expected to decline from 2.5% to 2.3% year-over-year. Monthly CPI is expected to be between 0.2% and 0.1%.
- Core CPI is expected to remain unchanged compared to August's figure at 3.2% year-on-year. The September figure is estimated to fall from 0.3% to 0.2% month-on-month.
- Other data reveals the number of new jobless claims for the week ending Oct. 5. According to the forecast, the number of new applicants for unemployment insurance will be 230,000, which is higher than the previous estimate of 225,000.
- Fed officials are becoming more cautious following Friday's NFP report. Vice-chair Philip Jefferson said his approach would be “meeting by meeting” and data-driven. Boston Fed President Susan Collins also predicts further rate cuts based on future data.
- Concerns about an economic recession have receded following the latest US employment statistics. As a result, most Wall Street banks, including Citi, JPMorgan, and Bank of America, have revised their call for a Fed rate cut in November from 50 bps to 25 bps.
- Meanwhile, the People's Bank of China (People's Bank of China) has suspended bullion purchases for five months. China's reserves remained unchanged at 72.8 million troy ounces as of the end of last month.
XAU/USD Technical Analysis: Gold Price Falls as Sellers Eye Support Below $2,650
As traders digested the September FOMC meeting, gold extended its losses below $2,630, falling to an intraday low of $2,605.
Although the Relative Strength Index (RSI) is showing mixed numbers and in bullish territory, short-term momentum is bearish.
XAU/USD fell below $2,620. A break above $2,600 would expose the psychological level of $2,550 above the 50-day simple moving average (SMA) of $2,537. Above these levels, the next number goes up to $2,500.
Conversely, if gold claws back higher to $2,650, it would open the door to a challenge to $2,670 ahead of the year-to-date high of $2,685.
Gold FAQ
Gold has played an important role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from their brilliance and use as jewellery, precious metals are widely seen as safe assets, meaning they are considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation, as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. With the aim of supporting their currencies in times of turmoil, central banks tend to purchase gold to diversify foreign exchange reserves and improve perceptions of economic and currency strength. High gold reserves can be a source of confidence in a country's solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase amount since records began. Central banks in emerging countries such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve and safe haven assets. Gold tends to rise when the dollar falls, allowing investors and central banks to diversify their assets during times of turmoil. Gold is also inversely correlated with risk assets. Rising stock markets tend to push gold prices down, while declines in riskier markets tend to favor the precious metal.
Prices may vary depending on various factors. Geopolitical instability and fears of a deep recession can cause the price of gold to quickly rise from its safe-haven status. Gold, a non-yielding asset, tends to rise when interest rates fall, but rising costs usually put pressure on the yellow metal. Still, most moves will depend on how the US dollar (USD) behaves, as the asset is priced in dollars (XAU/USD). A strong dollar tends to suppress gold prices, while a weak dollar can push gold prices up.
