Gold is under pressure and is tipped to retreat below $2,780 per ounce after a historic high of $2,790.
Gold’s moves come as inflation, the Fed’s preferred gauge, has shown stickiness in its September reading and is accelerating again, along with a set of figures that are reinforcing the US economy’s healthy image, reducing economic uncertainty.
Also, increasing talk of a possible ceasefire in Lebanon could prevent gold from making gains by benefiting from the geopolitical risk premium.
Core Personal Consumption Expenditure (PCE) Price Index growth accelerated from 0.2% to 0.3% on a monthly basis in September, in line with analysts’ expectations. The annual reading held steady at 2.7%, contrary to expectations of a slowdown to 2.6%.
In addition, personal spending growth accelerated to 0.5% on a monthly basis, beating expectations of 0.3% growth. Personal income also grew by 0.3% from 0.2%.
These figures come after better-than-expected ADP nonfarm employment and third-quarter GDP figures. While the US economy grew at a slower pace than expected in the last quarter, consumer spending grew for the second straight quarter and at the fastest pace since the first quarter of last year at 3.7%, suggesting resilience in this sector that has contributed most of the growth despite the relatively high-interest rate environment. This is in addition to government spending growth for the second straight quarter and a notable acceleration in export growth to 8.9%.
These figures have slightly weakened the probability of the Fed cutting interest rates by 25 basis points in January next year, but this probability is still above 43%, according to the CME FedWatch Tool. While expectations have not changed substantially regarding the November and December meetings, where a quarter-point rate cut is expected at each meeting.
The bond market has shown limited movement today, which may be due to the confusion that markets are experiencing with anticipation of more economic data and the results of the presidential election, in addition to the development of geopolitical factors.
The yield on the 10-year Treasury note is still hovering near 4.3%, and the ICE BofAML U.S. Bond Market Option Volatility Estimate Index (MOVE), which measures fear in the bond market, is still near its highest levels this year, reflecting the very high level of uncertainty in the fixed income market.
On the geopolitical front in the Middle East, hopes are growing about the possibility of reaching a ceasefire in Lebanon, after the significant progress made in negotiations between Hezbollah and Israel in the last hours, according to what the Axios reported, citing US officials. This optimism was expressed by the Lebanese caretaker Prime Minister Najib Mikati, who said yesterday that he hopes an agreement will be reached in the coming hours or days. In addition to the Cypriot president’s statement after his meeting with US President Joe Biden that he believes an agreement can be reached within a week or two.
In contrast, US officials have expressed doubts about the possibility of this momentum in reaching an agreement to end the fighting before the US elections, according to CNN. As Prime Minister Benjamin Netanyahu is waiting to know the identity of the next president.
The position of the far-right coalition in Israel, which has always rejected any agreement that would stop the war, whether in Lebanon or Gaza, is also unclear. This coalition’s ministers are constantly threatening to resign, which could bring down Netanyahu’s government.
Also, in contrast to that optimism, CNN quoted a high-ranking official who said that Iran is planning to launch an attack on Israel, which he described as “decisive and painful”, in response to the recent attack on it, which Israel has been warned not to take. The source indicated that Iran may launch this attack the day before the elections.
These fears about the return of escalation to worsen in contrast to the optimism about a ceasefire will fuel the state of uncertainty surrounding the presidential elections and make the gold market more volatile.
The return of a series of attacks and counter-attacks would expand the current conflict to include other countries in the region and oil supply chains flowing from the region, which would have an impact on the global economy, and this could contribute to re-fueling the bullish trend in gold.
