Heightened Geopolitical Tension, Gold Awaits Direction from FOMC

N Faiszah Ishak

Commodity

Central Bank

Economic

Summary:

Some traders may stay on the sidelines before the upcoming two-day FOMC monetary policy meeting, scheduled to start this Tuesday.

Despite Israel's incursion into Gaza, the country's more measured approach has helped allay fears of a wider crisis in the Middle East, leading to a decrease in the safe-haven Gold price. However, the risk of further escalation in the Israel-Hamas conflict still exists, which, combined with uncertainty about China's economic recovery, is prompting some investors to buy Gold near the $1,990 region. While dip-buying appears, caution is advised before taking a position for any significant corrective decline.

The price of Gold (XAU/USD) initially dipped into the $1,990 range. Still, it rebounded and rose to a new daily high during the early part of the European session. However, it is still below the psychological level of $2,000. This is due to the expectation that the Federal Reserve (Fed) will keep the door open for one more rate hike in 2023 to bring inflation back to its 2% target. The hawkish outlook supports high US Treasury bond yields, which boosts demand for the US Dollar (USD) and may limit the growth of Gold, which does not yield any interest.

Some traders may stay on the sidelines before the upcoming two-day FOMC monetary policy meeting, scheduled to start this Tuesday. Meanwhile, the US economic calendar, which includes the release of the Chicago PMI and the Conference Board's Consumer Confidence Index, could potentially impact the price dynamics of the USD and give some momentum to the price of Gold. However, due to the current market conditions, aggressive traders should exercise caution and avoid making hasty decisions before the central bank event.

Gold price continues to attract safe-haven flows

The US economy remains strong, with inflation above the Fed's 2% target, allowing the central bank to maintain a hawkish stance.

Fed Chair Jerome Powell warned earlier this month that inflation remains high, and more rate increases are possible if the economy continues to outperform expectations.

Easing geopolitical tensions in the Middle East contributes to a slightly bearish tone around XAU/USD as investors move away from safe-haven assets.

Concerns over China's economy rise as Manufacturing PMI shrinks and growth in services sector slows in October.

The Federal Reserve is widely expected to maintain the current interest rates at a 22-year high during its two-day monetary policy meeting scheduled for October 31-November 1.

The Federal Reserve is expected to maintain the interest rate at 5.25%-5.50%, its highest in 22 years when it announces its decision on Wednesday.

Investors will be looking for cues regarding the future rate-hike path, which will influence the USD and provide fresh directional impetus to the price of Gold.

Gold is struggling to gain traction despite remaining below a peak reached last week despite a lack of follow-through selling.

The price of Gold is on track to rise by 8% this month, the most significant increase since November 2022. This is due to safe-haven demand resulting from the crisis in the Middle East.

To stay updated on all economic events of today, please check out our Economic calendar

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Heightened Geopolitical Tension, Gold Awaits Direction from FOMC

Gold price continues to attract safe-haven flows

Risk Disclosure