Gold Spiked to All-Time Highs on Powell Speech & Middle East Jitters

  • XAUUSD
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XAU/USD Analysis

Speaking on Friday Fed Chair Powell said it is "premature" to deduce with confidence that a sufficient restrictive stance has been attained, and warned that policymakers are "prepared to tighten policy further". However, he noted that they are moving "carefully" as the risks of under- and over-tightening "are becoming more balanced". [1]

The speech comes just one day after PCE inflation decelerated further to the lowest levels in more than two years. Despite maintain a hawkish bias, market focus has shifted away from the potential of more hikes, to the timing of the first cut. Markets perceived the remarks as dovish and brought forward to March, the highest probability of such an outcome (from May previously), according to CME's FedWatch Tool. [2]

Investors are also monitoring the developments in the Middle East. The cease-fire between Hamas and Israel has stopped after the return of around 110 hostages, with PM Netanyahu vowing to continue the war and the ground assault [3]. Furthermore, the US Navy shot down three drones in the Red Sea, responding to Houthi attacks on commercial ships, according to US Central Command. [4]

Market hopes that the Fed is done hiking and will soon begin easing, have been detrimental to the greenback and helped XAU/USD to its second straight profitable month. It now spiked to all-time highs following Mr Powell's speech, also helped by Middle East-fueled risk aversion, having the ability to extend its advance.

On the other hand, markets may be overoptimistic around prospects of a Fed pivot and they have underestimated the Fed's commitment in the recent past. With inflation still far from the 2% target, a strong labor market and a hot economy, the Fed may need to do more and stay restrictive for long, in order to restore price stability.

Furthermore, the move looks stretched and XAU/USD already pulls back today, having already faltered three time above the 2K mark. As such, there is scope for a slide back to the EMA200 (at around 1,983), but daily closes below it would need a strong catalyst and the downside appears well protected.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 04 Dec 2023 https://www.federalreserve.gov/newsevents/speech/powell20231201a.htm

2

Retrieved 04 Dec 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

3

Retrieved 04 Dec 2023 https://www.gov.il/en/departments/news/statement-by-pm-netanyahu-2-dec-2023

4

Retrieved 02 Mar 2024 https://www.centcom.mil/MEDIA/PRESS-RELEASES/Press-Release-View/Article/3605010/houthi-attacks-on-commercial-shipping-in-international-water-continue/

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