Gold Price Stays Below 2000 Amid Dollar Rate Hike Uncertainty
Updated
Gold price experienced significant volatility on Wednesday as they initially moved closer to the $2,000 threshold ahead of the Federal Reserve's policy announcements. This surge was accompanied by the US Dollar's hesitant recovery, coupled with subdued US Treasury bond yields and a mixed market sentiment. However, there was a reversal in gold prices as they briefly dipped to around $1,970 immediately following the Fed's widely anticipated decision to keep the key policy rate within the existing range of 5.25%-5.50%.
The pivotal moment came during Fed Chair Jerome Powell's press conference and his responses to questions. Powell's comments had a substantial impact, causing a sharp decline in the US Dollar and US Treasury bond yields and triggering a strong recovery in the price of gold. While Powell did not entirely rule out the possibility of another interest rate hike, the markets interpreted his words as less hawkish than expected. He acknowledged factors like tighter financial conditions, a robust job market, a resilient economy, and elevated inflation levels.
The drop in US Treasury bond yields was also influenced by a quarterly Treasury announcement, indicating a slowdown in the expansion of its longer-dated auctions. The increase in 10-year Treasury bond auctions was $2 billion, falling short of the market's $3 billion expectations. This led to a decline of over 20 basis points (bps) in the benchmark 10-year Treasury bond yield, which reached its lowest point in over two weeks at 4.7089%.
Furthermore, the US Dollar faced headwinds due to mixed economic data. The US ADP private sector payrolls for October showed an increase of 113,000, below the estimated 130,000. The US ISM Manufacturing Purchasing Managers' Index (PMI) for October dropped to 46.7, falling short of the expected 49.0. Additionally, the Job Openings and Labor Turnover Summary (JOLTS) report revealed that the number of job openings on the last business day of September slightly rose to 9.55 million, up from a revised 9.50 million in August and surpassing the forecast of 9.25 million.
As for Thursday's trading, the price of gold is building upon its previous recovery. Investors are carefully considering the future path of interest rates set by the Federal Reserve, with expectations for rate hikes in December and January being scaled back. Some market participants are even beginning to price in the possibility of Fed rate cuts as early as June next year. The ongoing global stock market rally led by the Fed's policies is expected to continue weighing on the safe-haven US Dollar. This trend persists as traders shift their focus away from events such as the Hamas-Israel conflict in anticipation of Friday's release of US Nonfarm Payrolls data.
In addition to these factors, gold traders are also keeping a close eye on the monetary policy decision of the Bank of England (BoE), scheduled for later in the day. The key interest rate is expected to remain unchanged at 5.25% for the second consecutive meeting. A dovish stance from the BoE is likely to boost stocks further while exerting downward pressure on the Pound Sterling, which, in turn, could alleviate some of the stress on the US Dollar. Nevertheless, the price of gold continues to hold upside potential, supported by its daily technical setup.
The pivotal moment came during Fed Chair Jerome Powell's press conference and his responses to questions. Powell's comments had a substantial impact, causing a sharp decline in the US Dollar and US Treasury bond yields and triggering a strong recovery in the price of gold. While Powell did not entirely rule out the possibility of another interest rate hike, the markets interpreted his words as less hawkish than expected. He acknowledged factors like tighter financial conditions, a robust job market, a resilient economy, and elevated inflation levels.
The drop in US Treasury bond yields was also influenced by a quarterly Treasury announcement, indicating a slowdown in the expansion of its longer-dated auctions. The increase in 10-year Treasury bond auctions was $2 billion, falling short of the market's $3 billion expectations. This led to a decline of over 20 basis points (bps) in the benchmark 10-year Treasury bond yield, which reached its lowest point in over two weeks at 4.7089%.
Furthermore, the US Dollar faced headwinds due to mixed economic data. The US ADP private sector payrolls for October showed an increase of 113,000, below the estimated 130,000. The US ISM Manufacturing Purchasing Managers' Index (PMI) for October dropped to 46.7, falling short of the expected 49.0. Additionally, the Job Openings and Labor Turnover Summary (JOLTS) report revealed that the number of job openings on the last business day of September slightly rose to 9.55 million, up from a revised 9.50 million in August and surpassing the forecast of 9.25 million.
As for Thursday's trading, the price of gold is building upon its previous recovery. Investors are carefully considering the future path of interest rates set by the Federal Reserve, with expectations for rate hikes in December and January being scaled back. Some market participants are even beginning to price in the possibility of Fed rate cuts as early as June next year. The ongoing global stock market rally led by the Fed's policies is expected to continue weighing on the safe-haven US Dollar. This trend persists as traders shift their focus away from events such as the Hamas-Israel conflict in anticipation of Friday's release of US Nonfarm Payrolls data.
In addition to these factors, gold traders are also keeping a close eye on the monetary policy decision of the Bank of England (BoE), scheduled for later in the day. The key interest rate is expected to remain unchanged at 5.25% for the second consecutive meeting. A dovish stance from the BoE is likely to boost stocks further while exerting downward pressure on the Pound Sterling, which, in turn, could alleviate some of the stress on the US Dollar. Nevertheless, the price of gold continues to hold upside potential, supported by its daily technical setup.
Note
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