No Doubt About Rate Hike Pause, Will Gold Continue to Be Supported by Safe-Haven Demand?
Gold may continue its short-term consolidation and rebound; resistance at $2020, support at $1985. Escalation of Israel-Palestine conflict to support gold due to safe-haven demand; US September core PCE expected to cool down, favoring gold. Additionally, based on CFTC positioning data and technical analysis, the medium-to-long term downtrend in gold may reverse, with short-term potential for volatile upward movement.
Last week (October 23-29), precious metals saw mixed performance, with gold rising by 1.7% and silver slightly up by 0.4%. Influenced by factors such as the escalation of the Israel-Palestine conflict and the expected cooling of US core PCE in September, gold broke through the $2000 level and closed at $2005.78.
Source: MacroMicro 10.23-10.29 Major Precious Metals Futures Performance
September Core PCE Cools Down, Probability of Rate Hike Decreases for the Year
On Friday last week (October 27), the US Department of Commerce released data showing that the US September core PCE price index remained unchanged at 3.4% year-on-year, meeting market expectations. However, the core PCE price index, excluding food and energy, slowed down to 3.7%, a decline from August's 3.9% and in line with market expectations, reaching a two-year low. On a monthly basis, it increased by 0.3%, rebounding from 0.1% and recording the largest increase in four months.
This data lowered the market's expectations of a rate hike by the Fed this year. According to CME FedWatch data, the market predicts a 96.2% probability of the Fed maintaining the current interest rates in November and a 73.1% probability in December. The probability of a rate hike in December is 24%.
Market expectations of the Fed keeping high rates for an extended period have already been priced in. We believe that geopolitical risks hindering inflation control through oil prices will reduce the likelihood of a rate hike by the Fed this year. The short-term rise in gold is mainly driven by safe-haven demand, but the support for gold has a certain time limit. As tensions ease, gold prices are expected to decline.
Ignoring Ceasefire Resolution, Escalation of Ground Offensive Supports Safe-Haven Demand for Gold
On October 27, the United Nations overwhelmingly passed a humanitarian ceasefire resolution submitted by the Jordanian representative of the Arab Group during the tenth emergency session on the Israel-Palestine conflict, with 120 votes in favor.
However, Israel disregarded the UN's ceasefire resolution and persisted in conducting a second large-scale ground operation in the Gaza Strip. This action prompted collective warnings from Gulf countries to refrain from further ground actions. Additionally, Iranian President Raisi criticized Israel's behavior as having "crossed the red line" on October 29 and warned that this "may force everyone to take action." On the same day, White House National Security Advisor Sullivan also stated that the risk of regional conflict has increased due to the escalation of the new round of Israeli-Palestinian conflict.
In terms of CFTC positioning, gold speculative long positions have increased recently, while short positions have decreased, indicating a bullish outlook for gold. According to updated CFTC positioning data, from October 18 to 24, speculative long positions in gold increased significantly by 36,647 to 149,385 compared to the previous period. During the same period, open interest in gold futures for speculative long positions increased by 20,057 to 251,469, while short positions decreased by 16,590.
The Israel-Palestine conflict has intensified, with risks of further escalation. Currently, Iran and Gulf countries have collectively warned Israel, but there is still the possibility of using force to stop Israel's ground actions in Gaza, especially considering recent military exercises conducted by Iran in preparation for war. With Israel's failure to halt military operations in Gaza, market safe-haven sentiment continues to rise, and as the conflict further escalates, it will continue to drive gold prices upward.
Furthermore, the increase in long positions and decrease in short positions in the speculative market's CFTC positioning and open interest contracts indicate that market investors are bullish on the future of gold.
From a technical standpoint, the 60-day MA has flattened out gradually after a decline, showing signs of an upward trend. The 14-day RSI value of 72 is slightly overbought, exceeding the 70 threshold. On the daily MACD chart, the short-term line has crossed above the long-term line, forming a significant gold cross with higher bars positioned above the horizontal line. The DIFF, DEA, and MACD all show positive values, indicating that gold is still in a short-term uptrend.
Resistance level: 2020
Support level: 1985
Source: Investing.com Gold Daily Chart on October 30
Based on the analysis of various indicators, the medium-to-long term downtrend in gold may face a reversal, and gold may continue its consolidation and upward movement this week.
Additionally, investors should pay attention to news and economic data that could provide guidance for the future direction of gold, such as the US non-farm payroll figures for October, the Fed interest rate decision, and the initial core inflation rate for the Eurozone in October.
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