Gold price finds momentum on deepened Middle East tensions

Gold prices have recovered to around $1,850 due to the dismal market sentiment prompted by escalating tensions between Israel and Palestinians. The gold price is trading at $1852.43 per ounce at the time of writing. Dallas Federal Reserve Bank President Lorie Logan has also supported the gold price, drawing less emphasis on raising interest rates further if long-term interest rates remain elevated due to higher-term premiums.

Strong US employment growth has prompted bets for one more interest rate increase from the Federal Reserve as progress in taming inflation could slow down ahead. Fed Governor Michelle Bowman has stated that she supports further policy-tightening by the central bank to bring down inflation to 2% in a timely manner.

Going forward, the US Consumer Price Index (CPI) data will be keenly watched by market participants. The US NFP report showed that US employers hired 336K new job-seekers in September, significantly higher than expectations of 170K and the former release of 227K.

The unemployment rate remained steady at 3.8%, while investors anticipated a decline to 3.7%. Monthly wages grew at a slower rate of 0.2%, with the annualized wage rate decelerated to 4.2% against estimates and the former release of 4.3%. A surprisingly upbeat US NFP report has accelerated hawkish Federal Reserve bets, with traders seeing a 22% chance of the Fed raising interest rates by 25 basis points (bps) to the 5.50%-5.75% range at the next policy meeting.

The probability of one more interest rate increase in any of the two remaining monetary policy meetings this 2023 has also risen to 31%. On the US-global relations front, the US Commerce Department added 42 Chinese companies to the government’s export control list for providing support to Moscow’s military and defense industrial base. To stabilize US-China relations, US President Joe Biden and China’s leader Xi Jinping are planning to meet soon in California.

The US Dollar Index rebounds sharply after correcting to near 106.00 as investors rush to safe-haven assets due to the dismal market mood prompted by the war between Israel and Palestinians.