On Tuesday (October 15), during the Asian market's early session, spot gold experienced minor fluctuations with prices hovering around $2,648.42 per ounce. Previously, gold had surged to $2,666.70 per ounce, reaching a one-week high due to tensions in the Middle East, but then quickly retreated as the dollar strengthened following hawkish comments from Federal Reserve officials, closing slightly lower at $2,648.49 per ounce.
On Monday, the US dollar index strengthened due to hawkish remarks from several Federal Reserve officials, reaching a 10-week high of 103.36 and closing at 103.20, an increase of 0.26%. Federal Reserve Governor Waller, in a speech at Stanford University, noted that despite recent data showing a decline in inflation, the Fed should be more cautious about future rate cuts. He also stated that the US economy and labor market are performing better than expected, thus giving the Fed reason to slow the pace of policy rate adjustments. He emphasized that if supported by economic data, rate cuts can continue at a "prudent pace," but overly rapid easing of monetary policy should be avoided to prevent unnecessary economic drag.
Minneapolis Federal Reserve President Kashkari's remarks at the Central Bank of Argentina's meeting also drew market attention. He stated that although further rate cuts might be possible in the future, the neutral rate might be higher than pre-COVID-19 levels. Kashkari pointed out that the robust job market and economic growth indicate that the Fed can maintain a relatively high interest rate level without harming the economy, suggesting that the pace of future rate cuts will depend on inflation and economic data developments.
The market expects the Fed to cut rates by 25 basis points at its November meeting, with a probability close to 87%. Rate cuts usually reduce the opportunity cost of holding non-yielding assets like gold, but a stronger dollar increases the cost for holders of other currencies to purchase gold, weakening demand for gold. Additionally, stimulus policies in the Asian region and profit-taking activities have somewhat limited gold's upside potential.
Meanwhile, geopolitical news has also attracted extensive market attention. According to The Washington Post, two informed officials revealed that Israeli Prime Minister Netanyahu, in talks with the Biden administration, stated that Israel plans to strike Iranian military facilities without targeting its oil or nuclear facilities. This move suggests that Israel will take more limited military action to prevent the situation from escalating into a full-scale war. Analysts believe that Israel's cautious response might be intended to avoid further turmoil in the current sensitive international climate, particularly avoiding significant political impact on the U.S. presidential election.
Although Netanyahu has heeded U.S. advice, Israel has stated it will make its final decisions based on its national interests. Meanwhile, the conflict between Israel and Hezbollah in Lebanon continues. Israeli airstrikes in northern Lebanon have killed at least 21 people and expanded the scope of strikes against Hezbollah. The Israeli military stated that their actions are aimed at targeting Hezbollah's elite forces and ensuring the safety of residents in northern Israel to safely return home.
Under these circumstances, the allure of gold as a safe-haven asset has somewhat diminished. Market participants will closely monitor this week's speeches by Fed officials and U.S. economic data, particularly retail sales data and the New York Fed Manufacturing Index's performance, to assess the Fed's future monetary policy path.
