Gold Continues to Trade Above 1,980 as Fed Signals a Peak in Rates
Gold (XAU) fell below the 1,975 level on Wednesday but recovered during the American session after the Federal Reserve (Fed) kept its benchmark rate unchanged.
Initially, gold surged past the 1,990 mark per ounce on Wednesday, reversing its three-day slide. This rebound was primarily attributed to significant declines in the US dollar and Treasury yields. Later during the day, however, XAU/USD sold off and reversed. This shift in market dynamics followed the U.S. Federal Reserve's (Fed) decision to maintain its current monetary policy stance, which aligned with market predictions. Even though the Fed signaled the possibility of further monetary tightening due to sustained high inflation, rising concerns of a recession led traders to anticipate potential rate reductions. Meanwhile, ongoing geopolitical tensions in the Middle East also buoyed gold prices, highlighted by recent military actions in Gaza.
XAU/USD was relatively flat during the Asian and early European sessions. Today, traders should focus on the release of the U.S. Initial Jobless Claims report due at 12:30 p.m. UTC. Lower-than-expected figures will negatively impact XAU/USD, potentially pushing the price above 1,975. However, the long-term bullish trend in XAU/USD may continue if the figures come out higher than expected.
"Spot gold still targets a range of $1,951–1,964 per ounce, following the completion of a five-wave cycle from $1,809.50," said Reuters analyst Wang Tao.
Pound Trades in a Narrow Range as the Market Awaits the BoE Decision
British pound (GBP) briefly dropped below the important 1.21000 level on Wednesday but later recovered as the Federal Reserve (Fed) kept its base rate unchanged.
Although the Bank of England (BoE) and the Fed adopt a cautious stance on monetary policy, the American regulator is more advanced in its battle against inflation. Moreover, the U.S. economy seems stronger than that of the U.K. The BoE continues to express concern about sluggish growth and a potential recession, even as both core and headline inflation in the U.K. stay above 6%. Fed Chairman Jerome Powell hinted at a possible future rate increase. Still, given that the fund rates are already at a 22-year high, he mentioned substantial risks of overextending borrowing costs. Investors interpreted it as a dovish sign and currently price in less than a 20% probability of a rate hike in December. Ten-year Treasury yields have decreased by 20 basis points from their peak on Wednesday, and stocks surged, while risk-sensitive currencies such as the pound, rebounded.
GBP/USD continued to rise during the Asian and early European sessions. Today, all eyes will be on the BoE's interest rate decision. The U.K. regulator will announce its policy rate decision at 12 p.m. UTC. The market generally expects the BoE to leave the rates unchanged. However, it is by no means guaranteed, as last time, the decision to hold the rates steady was taken by a very narrow majority. Either way, traders should not hope to see any dovish comments from Andrew Bailey, the BoE Governor, as the inflation situation in the U.K. remains a key problem. If BoE decides to hike rates, GBP/USD will surge—possibly above 1.22200.
The EIA Report May Pull XNG/USD Towards 3.450
Yesterday, the price of US natural gas (XNG) dropped by more than 2% as the weather forecast indicated weaker heating demand for the next two weeks than was previously projected. In addition, Bluegold Trader, an energy consultancy, reported that natural gas production in the U.S. remains near record-high, which additionally exerted a downward pressure on prices.
Today, the U.S. Energy Information Agency (EIA) will publish its regular Natural Gas Storage report at 2:30 p.m. UTC. The EIA report will show the number of cubic feet of natural gas in the underground storage during the past week. Natural gas inventories are used to maintain price stability during supply shortages and increasing demand.
Most investors and traders will focus on the change in the volume of stored natural gas compared to the previous week. According to Reuters, analysts expect the stockpiles to increase by 80 billion cubic feet (Bcf) in the week to 27 October. If the EIA report shows a larger-than-expected increase in natural gas stocks, XNG/USD will likely drop towards 3.45000. Although a bullish report is less likely, it is still possible. In that case, XNG/USD will continue to trade within a 3.50000–3.60000 range.