- Gold prices fell further as expectations for a 50bps Fed rate cut faded and the US dollar became more attractive.
- Downside for gold prices is expected to be limited due to geopolitical tensions.
- Investors are awaiting FOMC minutes and September US inflation data.
Gold prices (XAU/USD) are expected to remain tense as investors focus on the September Federal Open Market Committee (FOMC) minutes to be released at 6pm Japan time. The FOMC minutes are expected to provide a detailed explanation behind the deep interest rate cuts and new clues about inflation and the economic outlook.
After maintaining a restrictive policy stance for more than two and a half years, the Federal Reserve began a policy easing cycle at its September meeting. Fed officials are almost unanimous in their belief that inflation is on track to sustainably return to the Fed's 2% target and are more concerned about a rebound in job growth (dissenting comments include Michelle Bowman was the only one to vote in favor of a significant 50 bps rate cut.
This week, investors will be paying close attention to the US Consumer Price Index (CPI) statistics for September, which will be released on Thursday. Economists estimate that annual core CPI, which excludes volatile food and energy prices, grew steadily by 3.2%. The annual headline CPI is expected to slow further to 2.3% from 2.5% in August.
Inflation data will have a big impact on market expectations for the Fed's interest rate outlook for the rest of the year. According to the CME FedWatch tool, 30-day federal funds futures price data indicates rate cuts of 25 bps in each of the remaining two meetings this year.
Meanwhile, Dallas Fed President Rory Logan warned in a speech during New York trading hours that upside risks to inflation have not yet completely disappeared. When asked about the outlook for interest rates, Logan supported a gradual approach to rate cuts.
Daily Digest Market Trends: Gold Prices Weigh on USD Strength
- Gold prices fell to nearly $2,600 in North American trading on Wednesday. Precious metals have been hurt by a strong U.S. dollar (USD), with traders pricing in a larger-than-usual 50 basis points (bps) rate cut at the Federal Reserve's next November meeting. Meanwhile, the US dollar is rising. .
- The US Dollar Index (DXY), which tracks the value of the US dollar against six major currencies, rose to around 102.80. The strength of the US dollar makes investing in gold prices an expensive gamble for investors.
- Meanwhile, the yield on the U.S. 10-year Treasury note rose further during European trading hours to nearly 4.05%. Higher yields on interest-bearing assets increase the opportunity cost of holding investments in non-yielding assets such as gold.
- Traders are pricing in bets on a big Fed rate cut after strong September U.S. nonfarm payrolls (NFP) data lowered the risk of an economic slowdown. US jobs data showed that demand for labor remained strong, unemployment slowed and wage growth was stronger than expected.
- However, the downside in gold prices is expected to be limited due to intensifying tensions in the Middle East. The war between Israel and the Iranian-backed Hezbollah intensified after the former killed Hezbollah leader Hassan Nasrallah and his successor. Historically, the attractiveness of precious metals such as gold has increased during geopolitical hardships.
Technical analysis: Gold price struggles above $2,600
The gold price widened its correction range from its all-time high of $2,685 to nearly $2,600 as profit taking continues. However, the overall trend for gold prices remains bullish, with 20-day and 50-day exponential moving averages (EMAs) of $2,615 and $2,550, respectively.
The upward trend line from the April 12 high of $2,431.60 will act as a major support for gold price bulls.
The 14-day Relative Strength Index (RSI) is within the 40.00-60.00 range, suggesting weakening momentum. However, the uptrend is maintained.
