Gold price firm as Israel holds off Gaza ground invasion

Gold price firm as markets continue to watch developments in Gaza, eye Fed rhetoric 

The price of gold dipped in early trading on Monday, stepping back from the five-month highs seen last week, but later recovered to trade around $1,978.90. The decline may have stemmed from diplomatic efforts aimed at preventing the Israel-Hamas conflict from escalating into a broader Middle East crisis, which seemed to briefly dented demand for the safe-haven asset.  

Israel has also held off from starting an expected ground invasion of the Gaza Strip, as a convoy from Egypt delivered food, water, and medicine into Gaza for the first time since the initial Hamas attack on October 7. 

Investors are cautiously monitoring news on upcoming U.S. GDP figures in the July-September quarter and inflation data, as these figures could influence the outlook for monetary policy.  

Interest rate impact: Gold price appears resilient in the face of pressure from yields 

Federal Reserve Chair Jerome Powell noted last week that inflation levels were still elevated and might lead to slower economic growth. “Tight policy is putting downward pressure on economic activity and inflation,” he said during a discussion at the Economic Club of New York. 

Although Powell recognized the consistent progress in curbing inflation and the role of increasing Treasury yields, he did not rule out further action by the Fed. The decision to raise rates or not will be contingent on the economy's performance in the forthcoming months, the official noted. 

On Monday, the 10-year Treasury yield passed 5% for the first time since 2007. Treasury yields have soared recently on expectations that the Fed will keep rates “higher for longer”, potentially slowing down the economy. 

Despite the surge in yields, markets expect that the central bank will keep interest rates unchanged at its upcoming policy meeting on November 1. As of October 23, the CME Group’s FedWatch Tool placed a 98.4% probability on the federal funds rate staying unchanged within the 5.25% to 5.5% range.  

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Gold price forecast: Analysts note yellow metal’s bullish momentum 

In its weekly precious metals review, made available to Markets.com, German technology firm Heraeus pointed to gold’s strong momentum in the face of higher U.S. inflation readings and hawkish hints from the Federal Reserve: 

“Higher than expected US inflation in the previous week and retail sales above expectation last week boosted the odds of the Fed further tightening monetary policy in November. Despite this, gold held its momentum from the week before, rising as high as $1,997/oz. Some of the rally was likely down to short covering, helped further by the escalation of the conflict in the Middle East motivating haven demand.” 

In a roundup on Monday morning, Kitco analyst Jim Wyckoff noted that gold prices’ brief retreat on Monday was nothing less than the result of “routine corrective, consolidative price pressure following recent gains.”  

“Bulls in both markets are still confident and are likely to step in to buy the dips at some point soon,” Wyckoff said. 

At the time of writing on Monday, the front-month gold contract on the NYMEX traded around the $1,978 mark, having bounced back from the earlier dip, as per MarketWatch data. 

When considering gold and other commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.