1. Debt ceiling talks go nowhere
In the debt ceiling negotiations on Tuesday local time, Biden and McCarthy refused to give in to each other. The negotiations that lasted about an hour did not make any progress. Said that it has rejected the plan to delay the extension of the debt ceiling until September 30, and needs to reach a debt ceiling agreement in principle before next week. Biden softened after the talks, saying he could cut spending and the deficit.
2. Fed officials dismiss rate cut expectations
Fed Williams: There is no reason to cut interest rates this year, and can raise interest rates again if necessary. Seeing signs of further tightening in credit, which could affect the outlook for future rate hikes by the Federal Reserve.
Federal Reserve Governor Jefferson: Inflation will start to fall, and the economy will have the opportunity to continue to expand.
3. Public confidence in Federal Reserve Chairman Powell has dropped to a record low. According to a Gallup poll: 36% believe Powell will do the right thing on the economy.
4. The NFIB small business confidence index in the United States in April recorded 89, a new low since January 2013, but there is no difficulty in obtaining credit
5. It is reported that the CEO of Blackstone has postponed the financial assistance plan for the latter after meeting with the potential 2024 presidential candidate of the Republican Party of the United States, DeSantis.
FXTM Research Analyst Lukman Otunuga
Gold prices were higher on Tuesday as investors prepared for a U.S. inflation report. Gold prices could fall further if U.S. inflation remains sticky, hit by Friday’s strong U.S. non-farm payrolls report, which raised the odds that the Federal Reserve will keep interest rates higher for longer. In this case, gold could fall below $2015, with bears eyeing the psychological $2000 level. And if there are signs that inflation is cooling, it will inject new confidence into gold bulls, pushing gold prices to $2045 and the year’s high area of $2063.
Edward Morse, Global Head of Commodities Strategy, Citigroup
In my opinion, gold will eventually reach $2400. However, gold prices have remained volatile recently due to changing interest rate expectations based on an uncertain economic outlook. While the Fed may have finished raising rates, investors still have to wait for more data that will provide a clearer picture of the Fed’s rate path.
The recent rise in the price of gold to around $2,080 indicates that the market has huge potential. However, gold’s gains depend on a weaker dollar and lower interest rates, and gold prices are actually expectations for the direction of interest rates and the dollar. We do think that the probability of gold eventually reaching $2,400 is very high, but before reaching this target position, the trend of gold may not be smooth, and investors need to be patient.
Central banks in emerging economies have been buying gold to diversify their foreign exchange reserves over the years, especially after the 2008 global financial crisis. This trend has accelerated with deteriorating geopolitical relations and inflation. Since the start of the quantitative easing policy in 2010, the central banks of Russia, China, India and Turkey have diversified their assets and increased their holdings of gold due to the shrinkage of their dollar assets. The trend has continued this year, with China, Singapore, Turkey and India buying a combined 228 tonnes of gold in the first quarter of 2023. The increase in gold purchases by global central banks this year is likely due to a trend of dollar weakness that began last year.
Other central banks may be looking to invest in gold as an alternative safe-haven asset given the heightened risk of a U.S. recession. While central bank gold buying demand is likely to remain strong, we do not see a threat to the dollar’s monetary dominance, and banks are using gold as a portfolio diversifier to hedge against macro and political risks. We continue to be bullish on gold, with a target price of $2,080 over the next 12 months.
Chester Ntonifor, Chief FX Strategist, BCA Research
Gold emerged as one of the most popular assets in 2023, up nearly 12% year to date, as a gloomy overall macro outlook and investor demand support higher prices. I think gold will climb to the $2,200 level in the next 9 to 16 months, which is where the price of gold is expected to be.
The main driver for gold is the weakness of the U.S. dollar. Although I think the wave of global de-dollarization is too exaggerated, I think the US dollar is still overvalued by about 20%. At the beginning of 2000, the U.S. dollar used to account for about 70% of global reserves, but now this value is only 60%, while the share of gold has increased from 6% in 2015 to 10%. As the most valuable G10 currency, the U.S. dollar is overvalued by 20% , if it adjusts down, the price of gold will rise. However, de-dollarization is not imminent, and IMF data shows that transactions in U.S. dollars are still increasing around the world.
Central bank purchases of gold have also provided strong support for gold prices, with last year’s record holdings of gold carried over into this year. In fact, central bank gold buying started about 10 years ago, and I don’t think this trend will reverse, with China, India, Russia and Turkey becoming the main buyers of gold recently. If you model the current level of central bank gold purchases and look 5 to 10 years into the future, gold should be at $2,600 over that time period.
Another key driver of gold’s gains this year has been inflation data versus inflation expectations. There is a disconnect between what is actually happening with inflation and what the market is pricing in. At present, inflation is still too high. One of the important attributes of gold is to protect purchasing power. If inflation is still full of stickiness, then the price of gold will break through.
Another important driver is the overall commodity industry sentiment. Gold also does have industrial demand If other industrial commodities do well, that’s good for gold.
Overall, I think gold is currently undervalued. In addition, the debt ceiling issue will also cause volatility in the investment portfolio. If the United States fails to resolve this issue before the deadline, the dollar will depreciate. According to estimates, there is a 10% chance of a U.S. debt default this year.