Gold's price, a traditional safe-haven asset, has been on a downward trajectory, currently hovering around $1,940. This decline is attributed to a combination of easing geopolitical tensions in the Middle East and hawkish signals from Federal Reserve (Fed) Chair Jerome Powell concerning future interest rate hikes. The upcoming US Consumer Price Index (CPI) data for October, set to be released on Tuesday, is adding to the uncertainty, potentially impacting the future trajectory of gold prices.
The recent comments by Jerome Powell have significantly dampened the allure of gold. Powell expressed doubts about the effectiveness of the current interest rate policy in controlling inflation, hinting at the possibility of further rate hikes. The market's response to the upcoming US inflation data will be crucial, as it will provide insights into the Fed's future monetary policy actions.
For October, the headline inflation is expected to show a modest growth of 0.1% month-over-month, compared to September’s 0.4% increase. The core CPI, excluding volatile food and energy prices, is anticipated to maintain a steady pace, expanding at 0.3% monthly and 4.1% annually. Persistent high inflation data may reinforce expectations of an additional rate hike from the Fed in December, potentially increasing interest rates to between 5.50% and 5.75%. Despite these projections, the broader market consensus leans towards the Fed keeping rates unchanged.
Powell's recent remarks highlight the ongoing challenge in taming inflation, emphasizing that the Fed's task is far from complete. He cautioned that failing to control inflation would be a significant misstep for the central bank, asserting the readiness to implement further rate increases if necessary to achieve the 2% inflation target. Supporting Powell's hawkish stance, St. Louis Fed interim President Kathleen O’Neill Paese also indicated that additional rate hikes cannot be ruled out, underscoring the need for more economic and inflation data before contemplating an interest rate increase.
Contrastingly, San Francisco Fed Bank President Mary Daly and Richmond Fed Bank President Thomas Barkin have expressed reservations about further raising interest rates. They emphasize the premature nature of declaring victory over inflation and the necessity of additional rate increases. The hesitancy among some Fed policymakers to support more rate hikes partly stems from the higher US long-term bond yields, which have significantly tightened financial conditions.
Despite the leaning of some Fed policymakers towards further rate increases, investors are largely not anticipating a rate hike in December. According to the CME Group Fedwatch tool, there is only a 15% chance of a 25 basis point rate increase at the December meeting. Meanwhile, the lack of significant escalation in the Israel-Palestine conflict has also reduced the appeal of gold. Israeli Prime Minister Benjamin Netanyahu’s rejection of ceasefire proposals and Hamas's stance on hostages continue to influence the geopolitical landscape. In the broader economic context, the US Dollar Index (DXY) faces pressure near the 106.00 mark, with investors hopeful for a potential rate-cutting cycle by the Fed starting in mid-2024. Morgan Stanley economists project that the Fed will begin easing monetary policy from June 2024, with a series of 25 basis point cuts, eventually bringing the policy rate down to 2.375% by the end of 2025.
From a technical perspective, gold prices are struggling for direction ahead of the US consumer inflation data for October. The near-term demand for the precious metal remains subdued due to multiple headwinds. On a daily timeframe, gold's price correction has approached the 50-day Exponential Moving Average (EMA) near $1,940.00. The next support level is projected near the 200-day EMA, around $1,915.00. The outcome of the US inflation report will likely be a decisive factor in determining the future course of gold prices.
