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▶️ Gold price rallied over 1% on Tuesday amid growing tensions in the Middle East as Israel’s attack on Hezbollah spurred Iran’s reaction, which launched nearly two hundred missiles. This sponsored a leg-up in the non-yielding metal, shrugging off overall US Dollar strength.

▶️ Gold will probably see upside capped, however, by comments from the Federal Reserve (Fed) Chairman Jerome Powell, who said on Monday that although the Fed made a larger-than-standard 50 basis points (bps) (0.50%) cut to interest rates at its last meeting.

▶️ The ISM Manufacturing PMI for September remained steady at 47.2, unchanged from the previous reading, but fell short of estimates of 47.5.

▶️ Market participants have placed the odds of a 25 bps rate cut at 61.6%. According to the CME FedWatch Tool, the chances of a larger 50 bps cut have diminished to 38.4%.

🥇🥇 The PPI (Producer Price Index) has a significant impact on the gold market because it measures inflation at the production level, influencing expectations regarding interest rates and the strength of the USD. Here’s how PPI affects gold prices:

🌈🌈 1. When PPI is higher than expected:

❄️ Pressure to raise interest rates: If PPI rises above expectations, it indicates increasing inflation at the producer level. Higher interest rates reduce the appeal of gold because gold doesn’t generate interest, while other assets like bonds become more attractive as rates rise.

❄️ Stronger USD: Higher interest rates also strengthen the USD. As the USD strengthens, gold typically declines because it becomes more expensive for investors holding other currencies.

❄️Outcome: Gold prices tend to fall when PPI is higher than expected due to expectations of higher interest rates and a stronger USD.

🌈 🌈 2. When PPI is lower than expected:

❄️ Lower interest rate expectations: If PPI comes in lower than forecast, it suggests weaker inflationary pressure, and the Fed may maintain or even lower interest rates. This makes gold more attractive since the opportunity cost of holding gold decreases.

❄️ Weaker USD: Lower interest rates cause the USD to weaken, and when the USD weakens, gold prices generally rise because gold becomes cheaper for international investors.

❄️ Outcome: Gold prices tend to rise when PPI is weaker than expected due to lower interest rate expectations and a weaker USD.

‼️NEWS, NEWS AND NEWS‼️

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8.30PM GMT+8
🔴 Core PPI m/m
🔴 PPI m/m

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