Gold futures rise amid Middle East tensions, Fed’s hawkish stance

Gold futures rebounded on Thursday, November 9, 2023, amidst escalating geopolitical tensions in the Middle East and hawkish comments from Federal Reserve Chair Jerome Powell. The most active December contract on the COMEX division of the New York Mercantile Exchange rose by $12 (0.61%) to close at $1,969.80 per ounce. This recovery follows a near $40 drop from last week’s peak.

The surge in gold prices came despite a rise in the USD to 105.90 and an increase in US Treasury bond yields (4.65% for 10 years and 5% for two years). Gold also managed to maintain a solid support level at $1,950 an ounce, reflecting investor confidence despite market volatility.

During the Jacques Polak Annual Research Conference on Thursday, Powell underscored his bias towards tightening monetary policy in response to reduced inflation from a 40-year high in June 2022. The Federal Reserve Chair expressed uncertainty over inflation control despite the FOMC’s objective for a restrictive monetary policy to achieve a 2 percent inflation target.

Furthermore, Powell hinted that a more stringent monetary policy might be necessary to curb aggregate demand growth and further lower inflation. His sentiment was echoed by Richmond Federal Reserve Bank President Thomas Barkin and Interim St Louis Federal Reserve President Kathleen Paese during discussions about potential rate adjustments.

Despite Powell’s hawkish stance, gold prices remained steady with December rising by 0.36% to trade at $1,964.80 an ounce. This resilience in gold prices was also observed during the early Asian trading session on Friday when gold rebounded from a three-day losing streak due to ongoing geopolitical tensions.

In addition to monitoring these geopolitical developments, investors are also focusing on upcoming economic indicators such as the Fed’s Logan speech, the preliminary US Michigan Consumer Sentiment Index for November, and UoM 5-year Consumer Inflation Expectation to predict gold’s future trajectory.

Meanwhile, the U.S. Labor Department reported a drop in unemployment benefit claims by 3,000 to a seasonally adjusted 217,000 for the week ending November 4, indicating strong economic growth. As market participants continue to assess these factors, the gold market demonstrates its resilience amidst uncertainty.

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