Gold prices climbed to a two-week high at $1933 an ounce while registered its first weekly gain in three last week, as markets stepped up their bets that the Federal Reserve was down with its rate-hiking cycle. Accordingly, the dollar index fell to its lowest level since September 1 and the U.S. 10-year Treasury yield plunged to a two-month low. Is gold ready to resume its upward march, conquering $2000 levels once again, or will the rally fizzle out? To answer this question, we need to shed the light on the main things that may affect gold prices in the week through November 24. Here are the key drivers for gold prices this week.
- Fed Minutes
The Fed will publish its meeting minutes for the Oct. 31-Nov. 1 policy meeting on Tuesday instead of Wednesday due to this week’s Thanksgiving holiday. Investors will scrutinize the minutes to get an update on how Fed officials view the monetary policy outlook.
At the beginning of November, the Federal Open Market Committee (FOMC) decided to hold the key federal funds rate for a second consecutive meeting at a target range between 5.25%-5.5%, the highest level in 22 years.
Whilst the decision was unanimous, there is no consensus meanwhile among Fed officials regarding what should happen to interest rates in December. The latest remarks from Fed policymakers were mixed, as some of them see that the U.S. central bank is at or near the peak of interest rate hikes while others believe that there should more evidence that inflation was cooling.
Fed Chair Jerome Powell said on November 9 he was not confidence whether the current restrictive monetary stance was sufficient to bring down inflation to the central bank’s 2% target over time.
For financial markets, the picture is completely different! Last week, U.S. annual consumer prices fell more than forecast to 3.2% in October, down from 3.7% in September, clocking the lowest annual rate since March 2021. The slowdown in inflation raised expectations the Fed would not raise borrowing cost again and hastened odds for how soon the Fed will cut rates.
Meanwhile, markets see no chance of a Fed rate hike in December, compared to a probability of 69.9% the Fed would stand pat on rates a month ago, according to the CME Fed Watch Tool. Futures signaled a 30% chance of rate cuts starting by March 2024.
- PMI Data
The Purchasing Managers’ Index (PMI) will be released from several major economies this week, most notably the U.S., Eurozone, U.K. and Japan. In general, the PMI survey offers a summary whether market conditions are expanding, unchanged, or contracting in both manufacturing and services sectors.
The flash U.S. Services PMI may signal an ease in the pace of expansion to 50.4 in November from 50.6 in October, while the manufacturing sector gauge is expected to fall in the contraction territory by recording 49.9 from a previous of 50.0. It is worth noting that the 50 mark separates growth from shrinkage.
Other important economic data from the U.S. due this week will be initial jobless claims, durable goods orders and a revised University of Michigan consumer sentiment.
In the euro area, the initial Composite PMI, which comprises both manufacturing and services activities, is predicted to show a slight improvement to 46.9 in November from 46.5 in October. The bloc will also release consumer confidence figures on Wednesday and the high-relevance German Ifo business climate index on Friday.
- China’s Benchmark Lending Rates
After keeping its benchmark lending rates unchanged last month, the People’s Bank of China (PBoC) is widely anticipated to hold the one-year loan prime rate (LPR) at 3.45% and the five-year LPR at 4.20%.
Some economists argue that a weakening yuan continues to restrict the PBoC’s latitude of monetary easing, as rate cuts widen the yield gap with the United States and other major economies.
Markets were cheered last week after US President Joe Biden and his Chinese counterpart Xi Jinping agreed on resuming military contacts between the two armies and limiting the production of fentanyl.
- Oil Price Volatility
Oil prices managed to rebound on Friday after tumbling to the lowest level in four months at $76.60 a barrel for Brent crude, as U.S. sanctions on some Russian oil shippers provided some support.
Investors will keep their eyes open on the movements of oil prices, following the recent volatility, noting that high oil prices is mainly a source of concern for higher inflation, especially as central banks still struggle to rein in the elevated inflation. Gold usually takes advantage during long periods of inflationary pressure, but, on the other hand, interest rate hikes odds to tame inflation could cap the yellow metal’s gains.