• Wed. May 22nd, 2024

As Doubt About the Future of Interest Rates Grows, the Price of Gold Goes Down

Leon Kramer

ByLeon Kramer

Sep 26, 2023

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  • The price of Gold continues to experience downward pressure as the United States economy demonstrates resilience in the face of elevated interest rates.
  • The United States economy effectively accommodates the ramifications of the Federal Reserve’s elevated interest rates.
  • Federal Reserve Governor, Ms. Lael Brainard, has expressed that implementing additional measures to tighten monetary policy remains viable.

The XAU/USD, representing the price of Gold, has experienced a significant decline, approaching $1,915.00. This downward movement can be attributed to the increasing uncertainty surrounding the Federal Reserve’s stance on interest rates.

The potential for further gains in the precious metal is limited due to the Federal Reserve’s ongoing commitment to a more cautious approach in their upcoming monetary policy discussions. According to the statement made by Austan Goolsbee, President of the Chicago Federal Reserve Bank, there is a prevailing sentiment that interest rates may need to be maintained at elevated levels for a longer duration than initially anticipated by financial markets. 

The volatility contraction plot of the US Dollar has been observed. However, it is essential to note that the broader trend continues to exhibit a bullish trajectory, primarily attributed to the resilience displayed by the US economy. Investors have indicated a growing sense of caution regarding the economic outlook of the United States.

This shift in sentiment can be attributed to the Federal Reserve’s commitment to maintaining interest rates at an adequately restrictive level in the long run to manage inflationary pressures effectively. The potential consequences encompass a possible escalation of the Unemployment Rate, a deceleration in labor demand, and an increased susceptibility to factory activities.

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This week, the attention of investors will be directed toward releasing the US Durable Goods Orders data and the Federal Reserve’s preferred inflation gauge for August.

Market Movers: Gold Falls Following Fed’s Goolsbee’s Hawkish Tone

  • The price of Gold has experienced a significant decline, nearing the value of $1,915.00, amidst mounting uncertainty surrounding the Federal Reserve’s stance on interest rates.
  • Investors continue to express perplexity regarding the Federal Reserve’s interest rate projections in light of the enduring resilience of the United States economy.
  • The United States economy has been experiencing the ramifications of increased interest rates efficiently implemented by the Federal Reserve.
  • Market participants express optimism regarding the trajectory of the US economy, as they anticipate a favorable scenario wherein inflation subsides without exerting adverse effects on economic expansion. The current circumstances have led to the Federal Reserve’s decision to maintain interest rates at their existing levels.
  • The current state of the US economy is characterized by stable labor demand, consistent wage growth, and strong momentum in consumer spending. However, it is essential to note that there is a cause for concern about the contracting Manufacturing Purchasing Managers’ Index (PMI).
  • According to a report by S&P Global, the preliminary Manufacturing PMI for September improved, rising to 48.9. This surpassed the anticipated figure of 48.0 and exceeded the reading of 47.9 in August. The Services Purchasing Managers’ Index (PMI), a metric that monitors a sector representing approximately two-thirds of the United States economy, experienced a decline to 50.2, deviating from the projected value of 50.6 and the previous figure of 50.5 recorded in August.
  • Federal policymakers have confirmed that interest rates will be maintained at elevated levels for an extended duration until the attainment of price stability. Regarding interest rate projections, policymakers expect benchmark rates to remain above the 5% threshold throughout the upcoming year. Furthermore, it is anticipated that by the conclusion of 2025, these rates will approach the approximate level of 4%. According to Federal Reserve members, inflation is expected to remain within manageable parameters in the year 2026. However, interest rates will likely surpass the levels observed before the onset of the pandemic.
  • According to the CME Fedwatch tool, market participants have assigned a 71% probability to maintain interest rates within the range of 5.25%-5.50% during the upcoming November monetary policy meeting.
  • The confidence regarding additional policy tightening is maintained by Susan Collins, President of the Federal Reserve Bank of Boston. According to Collins, it was stated on Friday that implementing an additional increase in interest rates remains a viable option. The individual proceeded to assert that inflation has the potential to decrease with a relatively minor increase in unemployment. Additionally, they noted that core services, excluding shelter, still need to demonstrate a consistent and enduring enhancement.
  • In contrast to the aforementioned sentiment, it is the professional opinion of Morgan Stanley’s Chief US Economist, Ellen Zentner, that the Federal Reserve has concluded its course of interest rate increases. The individual additionally stated that given the deceleration of inflation, it is probable that the central bank will maintain its current interest rates until it deems it appropriate to implement a reduction in the following year.
  • The US Dollar Index has exhibited a consolidation pattern within the range of 105.30-105.80 throughout the past three trading sessions. The prevailing trajectory shows a notable degree of optimism in light of the robustness of the US economy, juxtaposed with the challenges faced by other G7 economies in attaining a firm foundation.
  • In the current market landscape, there is a notable decline in US equities due to the prevailing sentiment among investors that an extended period of elevated interest rates would harm overall demand. The potential outcome of this situation may necessitate US firms to revise their growth projections downward.
  • This week, the attention of investors will be directed towards the forthcoming release of the Durable Goods Orders report for August, scheduled for publication on Wednesday. The observed economic data indicates a deceleration in contraction, with a decrease of 0.4% compared to the previous contraction of 5.2% in July.

Gold Consolidates Over $1,920, According to Technical Analysis

The price of Gold is currently experiencing difficulty in determining a clear trajectory due to prevailing uncertainties surrounding the outlook of interest rates. Traders have placed their wagers on interest rates, maintaining their current status. However, the Federal Reserve’s Collins has issued a commentary leaning toward a more hawkish stance.

The daily chart depicts a Symmetrical Triangle pattern in the Gold price, indicating a period of volatility compression resulting from the lack of a discernible economic catalyst. The upward potential of the Gold price remains constrained by the presence of the 20 and 50-day Exponential Moving Averages (EMAs).

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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