Oct 29, 2022
VOT Research Desk

Market Insights, Considerations & Analytics

Due to a strong US Dollar, gold prices hit a new three-day trough.

The Core PCE, the Fed’s preferred inflation indicator, outperformed forecasts, supporting further action.

US Treasury bond yields increased as the 10-year sought to surpass the 4% mark.

Due to continuing elevated US inflation reported, namely the Core Personal Spending Expenditures (PCE), the Federal Reserve’s preferred inflation indicator, which climbed more than expectations, supporting the US Dollar, the gold price declines and continues its losses below $1650. The XAUUSD is therefore trading at $1641.62, plunging 1.23%, aiming for the weekly lows of roughly $1638.

Comparatively more aggressive, with a later rather than earlier slowdown in rises 

Consumer spending, which makes up more than two-thirds of the American economy, increased 0.6% last month, according to the Commerce Department.

There are worries that the Fed will continue to be reasonably active and that a halt in rises will occur later rather than sooner if core PCE is at 0.5% monthly or 6% annually.

At its policy meeting on November 1-2, the Fed is largely anticipated to increase interest rates by 75 basis points. The majority of traders anticipate a 50 basis point increase for December.

Rising U.S. interest rates have a significant impact on gold prices because they raise the advantage cost of owning non-yielding metal while strengthening the dollar.

The Fed’s inflation indicator justifies more raising.

According to data released by the US Commerce Department on Friday, US inflation for September increased by 5.1% on an annual basis, exceeding analysts’ expectations of 4.9% growth and rising by 0.5% MoM, as measured by the Core PCE, which excludes volatile categories including food and energy. The Employment Cost Index (ECI), a metric the Fed uses to assess wage inflation, grew by 1.2% between July and September, according to a separate data from the Department of Labor.

Given the situation, that a so Fed pivot myth may be disregarded because, despite the Federal Reserve’s efforts to control inflation, inflation is still persistently high and wages are growing.

The main factor was the nearly 20 basis percent increase in the 10-year Treasury rates TMUBMUSD10Y, 4.016%, as there have been current indications that rising inflation may be stiffer than initially anticipated, which suggests that the Fed will remain in a hardline mindset. Undoubtedly, the price of gold hasn’t dropped as much as the sudden increase in actual yields might have indicated. But we believe that this disparity may be caused by the decreased liquidity of inflation-linked bonds.

Recent US economic data showed that consumer sentiment at the University of Michigan (UoM) remained constant at 59.9. Consumers’ projections for inflation over the next year have decreased from 5.1% to 5% and remained steady at 2.9% for the next five years and beyond.

Dollar strengthened on PCE data as Federal Reserve meeting was anticipated.

The XAU maintained defensive following the release of the data because the aforementioned justifications will support additional Fed hikes. The US Dollar Index, which compares the value of the dollar to six other currencies, is up 0.20% at 110.78, while US Treasury rates, namely the reference 10-year rate, are up five basis points at 3.973%.

Meanwhile, Wall Street maintains gains despite a strong earnings season, sending US stocks up.

The focus of the market is now on the Federal Reserve Open Market Committee (FOMC), which will take place the following week. According to the CME FedWatch Tool, 84.5% of experts anticipate the Fed to raise rates by 75 basis points at this meeting. The December meeting, though, will decide between 50 and 75 basis points, with most investors choosing this option.

Market turbulence and geopolitical unrest should increase gold’s attractiveness as a “safe haven,” which is why it is always thought of as a hedge against inflation. Nevertheless, the Federal Reserve as well as other monetary authorities have substantially increased interest rates to combat this year’s high inflation, igniting concerns of a recession.

Technical Levels in Gold

XAU/USD