Gold price remains on the defensive as Powell signals the possibility of more rate hikes

• The price of Gold falls due to the decrease in geopolitical tensions and the hawkish statements of the president of the Fed, Jerome Powell, on interest rates.
• US core inflation is expected to grow at a steady pace.
• A slowdown in progress in taming inflation could raise the Fed’s hawkish expectations.

The price of Gold (XAU/USD) has fallen to around $1,940 and is exposed to further declines amid multiple headwinds. The precious metal loses its shine due to the lack of a significant escalation of tensions in the Middle East, hawkish messages from Federal Reserve (Fed) Chairman Jerome Powell and his colleagues, and uncertainty over the Index data US Consumer Price Report (CPI) for October, which will be released on Tuesday.

Gold’s appeal diminished significantly after Jerome Powell said he was less confident that current interest rate policy was restrictive enough to keep inflation under control. The evolution of the Dollar, bond markets and the price of Gold will depend on US inflation data, which will determine whether further interest rate increases are necessary.

Daily Market Summary: Gold Price Remains Under Pressure Ahead of US CPI Data

• Gold price is trading within Friday’s range as investors focus on US inflation data for October due out on Tuesday.
• US consumer inflation is expected to provide clues to the Federal Reserve’s monetary policy action at its last meeting of 2023 in December.
• For October inflation data, headline inflation is expected to grow 0.1% monthly, compared to the 0.4% growth recorded in September. Monthly and annual core CPI data are expected to grow at a steady pace of 0.3% and 4.1%, respectively.
• The persistence of inflation data may raise expectations of a new rate hike by the Fed in December, which would raise interest rates to 5.50%-5.75%. Still, markets generally expect the Fed to keep rates unchanged.
• Last week, Fed Chairman Jerome Powell and his colleagues conveyed that their work to control inflation is not over yet. Powell is not confident that current interest rates are adequate to tame price pressures.
• Jerome Powell warned that a failure to control inflation would be the central bank’s biggest mistake. Furthermore, he stated that the central bank will not hesitate to raise interest rates further if necessary to ensure progress in easing inflation towards 2%.
• St. Louis Fed Acting President Kathleen O’Neill Paese supported Jerome Powell’s hawkish statements, saying that “it would be unwise to suggest that further rate hikes are off the table.” Paese emphasized the need to wait for additional economic and inflation data before contemplating an increase in interest rates.
• For their part, San Francisco Fed President Mary Daly and Richmond Fed President Thomas Barkin were unsure about the possibility of raising interest rates. Daly commented that she would be too early to declare victory over inflation and echoed the need to raise interest rates further.
• Part of the reason Fed officials do not actively support further interest rate hikes is the higher yield on long-term U.S. bonds, which has contributed significantly to further tightening financial conditions.
• Although Fed officials are leaning toward a further hike in interest rates, investors still do not see a rate hike in December.
• According to the CME Group’s Fedwatch tool, traders see a 15% chance that the Fed will raise interest rates by 25 basis points (bps) at the December meeting.
• Meanwhile, the absence of a significant escalation in the war between Israel and Palestine has significantly diminished Gold’s appeal. Israeli Prime Minister Benjamin Netanyahu continues to reject any proposal for a cessation of hostilities while Hamas denies the release of all hostages.
• The DXY Dollar Index remains under pressure near 106.00 as investors hope that the Fed can start the rate cut cycle in mid-2024.
• Morgan Stanley economists expect the Fed to begin easing monetary policy starting in June 2024. These cuts are expected to occur in declines of 25 basis points, bringing the official rate to 2.375% at the end of 2025. .

Technical Analysis: Gold price is trading near the 50 EMA below $1,940

Gold price struggles to find direction ahead of US consumer inflation data for October. Near-term demand for the precious metal remains bearish due to multiple headwinds.

On the daily chart, the Gold price correction has extended to near the 50-day EMA, which is trading around $1,940. The next support for the yellow metal lies near the 200-day EMA, around $1,915.