Gold edges lower as delay in Israel’s ground assault eases safe-haven appeal

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  • Gold price struggles for a direction as investors seek fresh development on Israel-Hamas conflicts and crucial US economic data.
  • The US Dollar and bond yields drop as investors await US Q3 GDP and the Fed’s preferred inflation gauge.
  • The US Manufacturing PMI is expected to remain below the 50.0 threshold for the 12th time in a row.

Gold price (XAU/USD) drops to near Monday's low as investors seek fresh development over Israel-Palestine tensions. The US urges Israel’s military to delay a ground assault in Gaza, giving preference to hostage release operations and the dispatch of humanitarian aid for civilians. In addition to that, investors await the release of crucial economic indicators, which will shape the Federal Reserve’s (Fed) interest rate outlook.

Meanwhile, upbeat US preliminary PMI data for October, reported by S&P Global, has diminished the appeal for the Gold price. The S&P Global reported that the Manufacturing PMI kisses the 50.0 threshold for the first time since November 2022. The factory data at 50.0, outperformed expectations of 49.5 and September's reading of 49.8. The Services PMI landed at 50.9 against expectations of 49.9 and the prior release of 50.1.

The Gold price remains underpinned, on a broader note, as Israel continues with airstrikes in Gaza, which has resulted in more than 5K deaths and 15K casualties. Meanwhile, long-term bond yields and the US Dollar edge lower as investors hope that the Fed is done with hiking interest rates. Going forward, investors will focus on the Gross Domestic Product (GDP) data for the July-September quarter and the Fed’s preferred inflation gauge for September.

Daily Digest Market Movers: Gold price falls back as S&P Global PMI topped expectations

  • Gold price trades mixed around $1,980.00 as investors seek fresh development on the Israel-Palestine conflicts and crucial US economic readings this week.
  • The broader outlook for the Gold price remains upbeat as Middle East tensions keep the safe-haven bid firmer. 
  • The precious metal struggles to find a direction amid a delay in the ground assault plan by the Israeli military troops. The market participants anticipate that Israeli troops are preparing as much as possible before the ground attack on Gaza by dismantling Palestinian military positions.
  • Meanwhile, the US has been urging Israel to delay a widely anticipated ground assault, thereby allowing more time for the release of hostages and the delivery of humanitarian aid for civilians.
  • Long-term bond yields have edged down from multi-year highs of 5.02% as investors turn cautious ahead of a string of US economic indicators. 
  • 10-year US Treasury yields have dropped to 4.81% as Federal Reserve policymakers continue to endorse no more interest rate hikes as higher yields are consistently impacting financial conditions.
  • Fed policymakers conveyed that high bond yields have bought time for the central bank to assess the impact of interest rate hikes made so far.
  • For more clarity on the Fed’s interest rate outlook, investors await a speech by Fed chair Jerome Powell, which is scheduled for Wednesday. 
  • Last week, Jerome Powell kept hopes of further policy tightening alive if the US economy continues to remain resilient. He acknowledged that the labor demand has been upbeat and consumer spending has remained strong despite significant efforts to ease inflation by raising interest rates.
  • Over the interest rate outlook, Powell said that further policy-tightening would be largely dependent on economic indicators, evolving outlook, and geopolitical tensions. 
  • This week, the release of the Q3 GDP, Durable Goods Orders, and core Personal Consumption Expenditure (PCE) price index for September will be keenly watched.
  • Economists expect that the US economy to have grown by 4.2% on an annualized basis, doubling the growth rate of 2.1% in the former reading.
  • The US Dollar Index (DXY) drops sharply to near 105.50 as the Fed is expected to keep interest rates unchanged in the 5.25-5.50% range in the November monetary policy meeting.
  • 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 remain around 24%.

Technical Analysis: Gold price hovers above $1,960

Gold price demonstrates a volatility contraction near $1,980.00 ahead of crucial US economic data. The precious metal turns sideways after failing to extend upside above the $2,000 psychological resistance barrier. The 20 and 50-day Exponential Moving Averages (EMAs) have delivered a bullish crossover above the 200-day EMA, which warrants more upside.

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

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