In a state of suspense, the gold price (XAU/USD) is wavering within the $1,920 range, mirroring the growing ambiguity surrounding the Federal Reserve’s interest rate outlook. Investors remain on edge, their optimism for the U.S. economy cautiously juxtaposed with the Fed’s steadfast commitment to maintaining a hawkish stance in upcoming monetary policy meetings. As the U.S. Dollar experiences a volatile consolidation, its overall trend continues to favor a robust American economy.
The Federal Reserve’s unwavering pledge to employ sufficiently restrictive interest rates to combat inflation has left investors pondering the repercussions. Concerns loom about an elevated Unemployment Rate, diminished labor demand, and increased vulnerability in factory activities. The forthcoming week will see investors closely monitoring U.S. Durable Goods Orders data and the Fed’s preferred inflation gauge for August.
Market participants are grappling with the hope that the U.S. economy will chart a course where inflation recedes without stifling growth, affording the Fed the luxury of maintaining interest rates at their current levels. The U.S. economy’s resilience is underscored by stable labor demand, steady wage growth, and the momentum of robust consumer spending. However, there remains a lingering concern in the form of a contracting Manufacturing PMI.
On a positive note, S&P Global reported an improvement in the preliminary Manufacturing PMI for September, rising to 48.9 from the expected 48.0 and August’s reading of 47.9. Meanwhile, the Services PMI, tracking a sector accounting for two-thirds of the U.S. economy, dipped to 50.2 from the anticipated 50.6 and August’s 50.5 figure.
Federal Reserve policymakers have reaffirmed their commitment to keeping interest rates elevated for an extended duration to achieve price stability. Projections by policymakers suggest benchmark rates staying above 5% into the next year, with 2025 seeing them stabilize at nearly 4%. Although inflation is expected to come under control by 2026, interest rates are forecasted to remain well above pre-pandemic levels.
According to the CME Fedwatch tool, traders estimate a 71% probability of interest rates remaining steady at 5.25%-5.50% at the November monetary policy meeting. Boston Fed President Susan Collins has expressed confidence in further policy tightening, asserting that another rate hike is indeed possible. Collins emphasized that inflation could ease with only a modest uptick in unemployment and noted that core services, excluding shelter, have yet to display sustained improvement.
However, not everyone shares this hawkish sentiment. Morgan Stanley’s Chief U.S. Economist, Ellen Zentner, believes that the Fed’s rate hikes are at an end. Zentner predicts that with inflation cooling, the central bank is likely to keep rates on hold until it deems it necessary to cut them next year.
Amidst these conflicting views, the U.S. Dollar Index has been consolidating within the 105.30-105.80 range over the last three trading sessions. The broader trend remains positive, bolstered by the strength of the U.S. economy, while other G7 nations grapple with their own economic uncertainties.
Simultaneously, U.S. equities are feeling the pressure as investors brace for a “higher for longer” interest rate context that could potentially dent overall demand. Such a scenario may compel U.S. companies to trim their growth projections.
In the upcoming week, all eyes will be on the Durable Goods Orders for August, set to be published on Wednesday. Economists anticipate a slower contraction rate of 0.4% compared to July’s 5.2% contraction, providing yet another piece of the puzzle in the ongoing debate over the U.S. economy’s path forward.
As the gold price struggles to find its bearings amidst the uncertainty surrounding interest rates, traders anxiously await a resolution to this economic puzzle. On the daily chart, the gold price forms a Symmetrical Triangle, reflecting a volatility squeeze precipitated by the absence of a clear economic trigger. The 20 and 50-day Exponential Moving Averages (EMAs) continue to exert pressure on the upside potential of the gold price, leaving investors in suspense about its future trajectory.