The international price of gold fell and the US index continued to rebound, waiting for the Fed to decide the pace of future interest rate hikes
On Friday (Oct 28), the international price of gold fell as the US dollar index was expected to continue rebounding overnight. But investors are generally cautious ahead of the Fed policy meeting next week and will be watching closely for any signs of the Fed’s rate hike slowing.
At 3:27 pm Beijing time, spot gold fell 0.60% to $ 1,653.08 an ounce; leading COMEX gold futures contract fell 0.55% to $ 1,656.4 an ounce; the US dollar index rose 0.27% to 110.878.
Data released overnight showed that the initial value of the annualized quarterly annualized rate of US real GDP in the third quarter was 2.6%, reversing the contraction in the previous two quarters and 0.2 percentage points higher than the expected value. Furthermore, European Central Bank President Lagarde believes the economic outlook is pessimistic, which is bearish for the euro.
All of this reinforced the dollar’s short-term trend, with the US dollar index rising more than 0.8% overnight, putting gold prices under pressure. The Federal Reserve has raised interest rates by 300 basis points since March, which has pushed gold down 9%.
But other data released overnight showed US consumer spending slowed to 1.4% in the third quarter. The Fed may be forced to slow the pace of rate hikes as the economy falters in an environment of high interest rates.
The US index fell for the second consecutive week, hitting a new low of 109.527 during the session since September 20; the 10-year US Treasury yield fell nearly 30 basis points this week, after rising for 12 consecutive weeks. While the Fed is likely to announce a fourth consecutive 75bp rate hike at its meeting next week, traders expect the Fed’s December rate hike to be reduced to 50bp.
Matt Simpson, City Index analyst, said: “A weaker dollar and lower US bond yields have certainly helped gold drop from its lows this week, but that’s no reason to be overly bullish on gold. .. but gold will do better in 2023 for that reason, “said Matt Simpson, an analyst at City Index. Gold could find demand from safe-haven funds “.
Chris Williamson, chief economist at S&P Global Market Intelligence, said the US economic downturn was evident in October as confidence in the outlook deteriorated dramatically. This is due to the collapse in service activity due to rising cost of living and tighter financial conditions.
The risk of economic contraction increased in the fourth quarter, while inflationary pressures remained high. That said, a looming recession is fundamentally good for gold, especially since it could come before inflation subsides. In this case, the economy will experience stagflation and gold should gain favor.
