GOLD PRICE RECOVERS AS HEAVY ODDS OF STEADY US INTEREST RATES REMAIN UNABATED

Gold price revives strongly as investors see November monetary policy remaining unchanged.

The US Dollar and bond yields capitalize on hot headline inflation data.

Fed’s Collins says that persistent rise in US yields could diminish the need for further policy-tightening.

Gold price (XAU/USD) has revived after a knee-jerk move on Thursday, a result of the United States Consumer Price Index (CPI) report for September showing headline inflation above expectations. The precious metal recovered quickly as traders’ bets for an unchanged interest rate decision by the Federal Reserve (Fed) at its November monetary policy meeting became even more pronounced. This was due to the CPI’s core inflation reading softening in line with expectations. Headline inflation turned out hotter than consensus as higher global oil prices added to the price index.

The US Dollar and bond yields also recovered as persistent inflation data lifted the odds of one additional interest rate hike by the Fed in the remainder of 2023. The appeal for the US Dollar improves as global slowdown fears have risen due to deepening Middle East tensions. Meanwhile, investors shift focus to Fed Chair Jerome Powell’s speech, scheduled for next week, which will provide cues about the likely monetary policy action taken at the November 1 meeting.

Daily Digest Market Movers: Gold price rebounds strongly despite recovery in US Dollar

Gold price recovers swiftly after a knee-jerk reaction triggered by the release of the US CPI data for September, released on Thursday. 

September’s inflation report conveyed that headline inflation rose at a higher pace of 0.4% against expectations of 0.3% due to rising prices of gasoline and food products. The annual headline CPI data grew at a steady pace of 3.7% but remained higher than expectations of 3.6%.

The monthly and annual core inflation that excludes volatile oil and food prices rose by 0.3% and 4.1%, respectively, as expected. 

The steadily sinking core inflation data was followed by a solid recovery in the US Dollar Index (DXY) as it rose to 106.60 from its 15-day low of 105.35.

The appeal for the US Dollar has improved significantly as scrutiny of the economic data for September released so far conveys that the US economy is resilient. The labor market conditions remained upbeat, factory activities improved, and the Services PMI remained above the 50.0 threshold. 

Fears of a global slowdown remain persistent as China’s inflation turned out stagnant in September, while investors forecasted growth of 0.2%. The Chinese economy is struggling to recover due to poor demand amid a rising jobless rate.

The 10-year US Treasury yields revived strongly to near 4.65% as investors expected that inflationary pressures above the desired rate of 2% would be the hard nut to crack for Federal Reserve (Fed) policymakers.

A persistent US inflation report has lifted bets for one more interest rate increase from the Fed in the remainder of 2023. 

As per the CME FedWatch Tool, traders see a 90% chance of the Fed keeping interest rates unchanged at 5.25 to 5.50%. The odds of one more interest rate increase in any of the two remaining monetary policy meetings in 2023 has increased to above 30% however.

A minority of investors expect that the Fed will end up hiking interest rates later this year by an additional 25 basis points (bps) to 5.50 to 5.75% to ensure the achievement of price stability in a timely manner.

Boston Fed Bank President Susan Collins confirmed on Thursday that one additional interest rate hike is not off the table but warned that if US bond yields remain higher the appeal for further policy tightening would diminish.

Fed Governor Christopher J. Waller supports a “wait and watch” approach as 10-year US Treasury yields have risen sharply in recent weeks. Market watchers hope that higher yields are sufficient to reduce overall spending and investment and thus control inflation.

On Thursday, the US Department of Labor reported that Weekly Jobless Claims remained almost unchanged last week. Individuals claiming jobless benefits for the week ending October 6 remained steady at 209K, a little lower than expectations of 210K.

Going forward, investors shift focus to the speech from Fed Chair Jerome Powell, which is scheduled for Oct 19 before the Economic Club of New York. Investors would watch for November’s monetary policy framework and the outlook on inflation and the economy.

Technical Analysis: Gold price recaptures two-week high

Gold price recaptured the two-week high at $1,885.00 as the odds for an unchanged interest rate decision by the Fed at November’s monetary policy meeting remained unflinchingly high despite the CPI’s hint of continuing inflationary pressure. The precious metal seems to be stabilizing above the 20-day Exponential Moving Average (EMA), which trades around $1,873.00. The yellow metal is further approaching the 50-day EMA. Momentum oscillators recovered from the oversold zone on Friday