Gold Trades Within a Narrow Range as Markets Digest Warsh’s Signals

Gold prices (XAU/USD) traded within a narrow range on Friday (October 16), following gains in the previous session. During the Asian session, gold fluctuated between slight gains and minor losses, while the US dollar touched a near two-week low. A weaker dollar and a sharp decline in US government bond yields provided support for gold—a non-yielding asset.

At the IMF and World Bank annual meetings in Bangkok, Federal Reserve official Kevin Warsh did not provide a clear signal regarding the next interest rate decision. In a discussion with IMF Managing Director Kristalina Georgieva, Warsh emphasized that the Fed remains committed to price stability and prefers not to preempt the outcomes of individual policy meetings.

However, Warsh’s remarks have not significantly altered market expectations regarding Fed policy. His focus on the surge in investment and developments in AI suggests that the central bank continues to weigh the implications for economic growth against potential risks to the economy. This stance has kept the market cautious in forecasting the trajectory of interest rates through the end of the year.

Gold remains under pressure due to persistently high US inflation. September’s Producer Price Index (PPI) data showed a 1.3% monthly increase and a 6.3% annual rise, while the core PPI climbed 0.7% month-on-month and 5% year-on-year. These figures indicate that price pressures are broadening beyond the energy sector, potentially sustaining expectations for a Federal Reserve rate hike.

According to the CME FedWatch tool, the market assigns a greater than 90% probability to a Federal Reserve interest rate hike in December. This presents a challenge for gold, as higher interest rates tend to increase the appeal of yield-bearing assets. Conversely, a weaker dollar and declining Treasury yields have provided enough room for gold to maintain its recent gains. Newsmaker Analysis: Gold is currently caught in a tug-of-war between support from a weakening dollar and lower yields, and pressure stemming from the Federal Reserve’s persistently hawkish interest rate expectations. While the escalation of conflict in the Middle East has boosted demand for safe-haven assets, it also threatens to keep energy prices elevated, thereby reinforcing inflationary pressures. As long as yields and the dollar do not stage a significant recovery, gold retains the potential to sustain its positive momentum—though volatility is expected to remain high ahead of the Federal Reserve’s next policy decision. (asd)

Source: Newsmaker.id