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Fed Signal Slowdown in Rate Hikes Support Gold Prices
Fed Signal Slowdown in Rate Hikes Support Gold Prices
Wednesday, 30 November 2022

Price Performance Indicators

Product 

Price

% change

GOLDUD

1754.19

0.86%

GOLDGR

892500

0.61%

XAUUSD

1753.55

0.88%

COMEX

1753.3

0.92%

USD/IDR

15668

-0.25%

Gold focus :

  1. ICDX gold price strengthened 0.86% in the week (21/11 - 25/11).
  2. US economics data and The Fed smaller rate hike.

Market Review

ICDX gold price strengthened by 0.86% compared to the previous week supported by the weakening performance of the dollar index in line with pessimistic US economic data and the minutes of the FOMC meeting fueled expectations of a smaller interest rate increase. Also supporting the performance of gold is the geopolitical development of Russia - Ukraine.

The dollar index is in its lowest zone since mid-August losing -1.59% on the week, making dollar-priced gold more affordable for holders of other currencies. The Department of Labor reported workers filing new claims for unemployment benefits increased to a level of 240K, higher than forecast at 225K and the previous data 223K. In addition, manufacturing and service business activities also showed a contraction. US Flash Manufacturing PMI released by Markit reportedly fell to 47.6 compared to the prediction at 50.0 level and the previous data 50.4, while the US Flash Service PMI weakened to 46.1 compared to the prediction at the level of 48.0 and the previous data 47.8.

Minutes from the Fed's meeting earlier this month showed a majority of policymakers agreed on the possibility of a slower pace of rate hikes to a smaller extent. Atlanta Fed President Raphael Bostic said he was prepared to move away from a three-quarter point hike at the upcoming FOMC meeting. Cleveland Fed President Loretta Mester expressed the view that the central bank could slow down from a 75 basis point hike at the next FOMC meeting and see good progress on inflation next year.

Russia has been launching missiles about once a week since early October and admits to attacking basic infrastructure with the aim of reducing Ukraine's ability to wage war and encourage negotiations. The Ukrainian government confirmed the relentless attacks from Russian missiles inflicted damage on power generation facilities. Ukrainian authorities say millions of Ukrainians are facing planned power outages in all regions because winter has started and electricity consumption is increasing. President Volodymyr Zelenskiy said that electricity, heating, communication networks and water supply in 15 regions are being restored gradually. Gold as a safe-haven asset is generally sought when the turmoil of geopolitical conflicts is heating up.

Market View

The Fed’s Interest Rate Policy and China’s Covid-19 Condition

The Fed's interest rate policy is still overshadowing gold's movements considering that there is still one last Federal Open Market Committee meeting in 2022 scheduled for December 13-14. The US central bank is potentially to raise another interest rate hike which currently at the range 3.75% - 4.00% after the Fed raised 75 basis points in early November. San Francisco Fed President Mary Daly revealed that the central bank could raise interest rates above 5% if it feels inflation has not subsided, but it was not clear whether another 75 basis point hike was needed or another different size rate hike. An increase in interest rates with a high magnitude has the potential to diminish the attractiveness of gold because it is considered less yielding compared to financial products that generate interest. Meanwhile from the demand side, China, as one of the largest consumers of gold, faces fears of slowing economic growth. China reported 28,127 COVID-19 infections at the start of last week and recorded its first new death since May triggering new restrictions and tightening rules on entering cities.


WEEKLY ECONOMIC DATA & EVENTS CALENDAR

Date

Data / Events

Actual

Expectation

Previous

29-November

USD - FOMC Member Bullard Speaks

-

-

-

29-November

USD - FOMC Member Williams Speaks

-

-

-

29-November

USD - CB Consumer Confidence

100.2

100.0

102.5

30-November

USD - ADP Non-Farm Employment Change

-

196K

239K

30-November

USD - Prelim GDP q/q

-

2.8%

2.60%

30-November

USD - JOLTS Job Openings

-

10.24M

10.72M

30-November

USD - Pending Home Sales m/m

-

-5.8%

-10.2%

1-December

USD - Fed Chair Powell Speaks

-

-

-

1-December

USD - Core PCE Price Index m/m

-

0.3%

0.5%

1-December

USD - Unemployment Claims

-

234K

240K

1-December

USD - ISM Manufacturing PMI

-

49.7

50.2

2-December

USD - Average Hourly Earnings m/m

-

0.3%

0.4%

2-December

USD - Non-Farm Employment Change

-

200K

261K

2-December

USD - Unemployment Rate

-

3.7%

3.7%

Source: ICDX Research

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