Gold prices (XAU/USD) have experienced a robust recovery due to escalating political tensions in the Middle East and the hope that the Federal Reserve (Fed) will refrain from further interest rate hikes this year. The precious metal gained momentum following an unexpected turn of events on Thursday, boosted by the release of the US Consumer Price Index (CPI) report for September, which indicated higher-than-expected overall inflation. Gold swiftly bounced back as traders bet heavily on the clarity emerging around the Fed's decision to keep interest rates unchanged at the November monetary policy meeting. This comes as the basic inflation index of the CPI slightly decreased, aligning with expectations. Inflation information has become more significant as global oil prices rise, adding to the overall price index.
Additionally, the neutral remarks from Philadelphia Fed President Patrick Harker have also supported gold prices. Fed Harker cited that prolonged concerns about inflation have not materialized in recent data, allowing the central bank to maintain interest rates in the near future.
Gold prices surged to nearly $1,920.00 after a rapid recovery following knee-jerk reactions triggered by the announcement of the US CPI data on Thursday. The precious metal is preparing for its best week in seven months due to deepening Israel-Hamas tensions and increasing expectations that the Fed will not raise interest rates further this year.
The September inflation report revealed a general increase, with gasoline and food prices driving the overall inflation rate higher by 0.4% against an expected 0.3% rise. The monthly and annual core inflation data, excluding volatile oil and food prices, increased by 0.3% and 4.1%, respectively, in line with predictions.
Core inflation has gradually decreased following the strong recovery of the US Dollar Index (DXY) as it climbed to 106.60 from a 15-day low of 105.35. The appeal of the US Dollar has significantly improved as careful consideration of September's economic data suggests the US economy is poised for recovery. Labor market conditions remain optimistic, factory activities have improved, and the Services PMI remains above the 50.0 threshold.
Persistent concerns about global recession linger as China's inflation remains sluggish in September, while investors anticipate a growth rate of 0.2%. China's economy is struggling to recover due to weak demand amid increasing unemployment rates.
The yield on the 10-year US Treasury bond has sharply rebounded to nearly 4.65% as investors anticipate that the pressure of inflation above the desired 2% level will pose a challenging dilemma for the Federal Reserve's policy planners.
A prolonged US inflation report has raised bets that the Fed will raise rates once again in the remaining months of 2023. According to the CME FedWatch Tool, traders see a 92% chance that the Fed will maintain interest rates between 5.25% and 5.50%. The probability of another interest rate hike during any remaining monetary policy meetings in 2023 is approximately 30%.
Some investors expect the Fed to end the year with an additional 25 basis points (bps) increase to 5.50% to 5.75% to ensure timely price stability. Boston Fed President Susan Collins confirmed on Thursday that another interest rate hike is unlikely, but cautioned that if US bond yields remain high, the likelihood of further policy tightening will decrease.
Fed Governor Christopher J. Waller supports a "wait-and-see" approach as the 10-year US Treasury bond yield has surged in recent weeks. Market watchers hope that higher yields will be enough to curb overall spending and investment, thereby controlling inflation.
Meanwhile, the University of Michigan reported that the Consumer Confidence Index dropped to 63.0 in October from an expected 67.4, with the previous index at 68.1.
In the coming days, investors will shift their focus to Fed Chairman Jerome Powell's speech scheduled for October 19th before the New York Economic Club. Investors will closely monitor the November monetary policy framework as well as prospects for inflation and the economy.
Additionally, the neutral remarks from Philadelphia Fed President Patrick Harker have also supported gold prices. Fed Harker cited that prolonged concerns about inflation have not materialized in recent data, allowing the central bank to maintain interest rates in the near future.
Gold prices surged to nearly $1,920.00 after a rapid recovery following knee-jerk reactions triggered by the announcement of the US CPI data on Thursday. The precious metal is preparing for its best week in seven months due to deepening Israel-Hamas tensions and increasing expectations that the Fed will not raise interest rates further this year.
The September inflation report revealed a general increase, with gasoline and food prices driving the overall inflation rate higher by 0.4% against an expected 0.3% rise. The monthly and annual core inflation data, excluding volatile oil and food prices, increased by 0.3% and 4.1%, respectively, in line with predictions.
Core inflation has gradually decreased following the strong recovery of the US Dollar Index (DXY) as it climbed to 106.60 from a 15-day low of 105.35. The appeal of the US Dollar has significantly improved as careful consideration of September's economic data suggests the US economy is poised for recovery. Labor market conditions remain optimistic, factory activities have improved, and the Services PMI remains above the 50.0 threshold.
Persistent concerns about global recession linger as China's inflation remains sluggish in September, while investors anticipate a growth rate of 0.2%. China's economy is struggling to recover due to weak demand amid increasing unemployment rates.
The yield on the 10-year US Treasury bond has sharply rebounded to nearly 4.65% as investors anticipate that the pressure of inflation above the desired 2% level will pose a challenging dilemma for the Federal Reserve's policy planners.
A prolonged US inflation report has raised bets that the Fed will raise rates once again in the remaining months of 2023. According to the CME FedWatch Tool, traders see a 92% chance that the Fed will maintain interest rates between 5.25% and 5.50%. The probability of another interest rate hike during any remaining monetary policy meetings in 2023 is approximately 30%.
Some investors expect the Fed to end the year with an additional 25 basis points (bps) increase to 5.50% to 5.75% to ensure timely price stability. Boston Fed President Susan Collins confirmed on Thursday that another interest rate hike is unlikely, but cautioned that if US bond yields remain high, the likelihood of further policy tightening will decrease.
Fed Governor Christopher J. Waller supports a "wait-and-see" approach as the 10-year US Treasury bond yield has surged in recent weeks. Market watchers hope that higher yields will be enough to curb overall spending and investment, thereby controlling inflation.
Meanwhile, the University of Michigan reported that the Consumer Confidence Index dropped to 63.0 in October from an expected 67.4, with the previous index at 68.1.
In the coming days, investors will shift their focus to Fed Chairman Jerome Powell's speech scheduled for October 19th before the New York Economic Club. Investors will closely monitor the November monetary policy framework as well as prospects for inflation and the economy.
