1. Debt Ceiling Delays
The debt ceiling meeting between Biden and McCarthy was postponed until next week, and staff will continue to engage. Schumer said the talks were making progress. U.S. five-year credit default swaps (CDSs) rose to 74 basis points from Wednesday’s close of 73 basis points, the highest level since March 2009, according to S&P Global Market Intelligence
2. Fed officials say they may have to stick to tightening for a long time
Minneapolis Fed President Neil Kashkari said that inflation is falling but stubborn and may have to stick to tight monetary policy for a long time. Now is not the time to change the 2% inflation target, once we get inflation down to 2%, we can consider changing the target.
The number of Americans filing initial jobless claims for the week ending May 6 hit 264,000, the highest since the week ending October 30, 2021. In addition, the U.S. PPI monthly rate recorded 0.2% in April, which was also lower than market expectations of 0.3%, which may provide more evidence that U.S. inflation has peaked.
3. Dynamics of banking issues
（1）The FDIC said large banks are expected to face billions of dollars in additional deposit insurance fund charges to cover losses from the failures of Silicon Valley Bank and Signature Bank.
（2）Westpac said deposits fell last week and pledged more assets to the Federal Reserve to boost lending capacity. The strategic asset sale is planned to be completed in the second quarter. The bank’s U.S. stock closed down 22%.
4. According to related statements, the Prime Minister of Egypt has decided to exempt gold imports from tariffs for 6 months, but value-added tax still needs to be paid.
5. Geopolitical dynamics
Ukrainian President Volodymyr Zelensky said Ukraine needs more time to fight back.
On the 11th local time, the conflicting parties in Sudan signed an agreement in the western Saudi city of Jeddah, reaching agreement on some issues of principle.
MARKET VIEWPOINTS
Fxstreet Analyst Anil Panchal
Gold prices fell for a second day despite a weak U.S. economy. The reason may be that the market has further fermented concerns about the expiration of the US debt ceiling and the banking industry, and funds have begun to flock to the US dollar for safe haven. The latest negative news is that the debt ceiling talks between US President Biden and House Speaker McCarthy, which were scheduled to be held on Friday, were postponed, but the two sides agreed to meet early next week. The news had a negative impact on risk appetite, and because the US Treasury Department has already issued a warning that the federal government may default as soon as June 1 unless the debt ceiling is raised, the influence of many small details is magnified as the time approaches up.
While risk aversion kept the greenback firm, U.S. economic data did little to boost the greenback. After the decline in US CPI, PPI rose to 0.2% MoM in April vs. 0.3% expected. More importantly, core PPI rose MoM but fell YoY, which moderated risk aversion. In addition, U.S. initial jobless claims rose by 264,000, pushing the data to the highest level since October 2021, which in turn fueled risk aversion and favored the dollar. After the data was released, Minneapolis Fed President Kashkari said that inflation has eased, but warned that inflation is still above the 2% target, and we need to take a firm path to combat inflation. The overall speech showed a hawkish tone. Today we need to focus on the initial value of the University of Michigan consumer confidence index in May in the United States, as well as the five-to-ten-year inflation expectations in the United States in May.
Gold prices fell below the previous pennant pattern on Thursday, suggesting further downside for the yellow metal. The decline in gold prices also confirmed the divergence signals from the moving averages converging and the MACD indicator and RSI on the 4-hour chart. Gold prices appear to be on track to hit the 200-period exponential moving average, currently at $1993. If gold prices do not stabilize after breaking below this moving average, the next target will be the mid-March high of $1,937 and the round-number mark of $1,900. On the other hand, if the price of gold can get back above the pennant, that is, above $2042, the price of gold will gain momentum again, and look at $2050 and the all-time high of $2080. Above this, the rising resistance line that started on March 20 will soon extend to the round number of $2,100, which may provide resistance for gold to rise further. In general, at present, we first need to pay attention to whether the gold price can hold the 200 exponential moving average on the 4-hour chart.
Ole Hansen, Head of Commodity Strategy, Saxo Bank
With core inflation at 5.5%, the Fed still has a lot of work to do to reach its 2% inflation target, unless the Fed raises its inflation target, or the U.S. enters a recession that forces them to refocus on the economy, or some kind of economic shock hits economy.
While the latest economic data awaits, the short-term outlook points to further consolidation in gold, but we remain bullish on the overall outlook for gold for the following reasons. First, the dollar will continue to weaken as yield spreads continue to narrow. Second, based on history, over the past 20 years, the months and quarters following the confirmation of the first three Fed rate peaks have all seen strong gold price gains. Third, as the focus of de-dollarization continues to attract the gold demand of many central banks, the central bank’s gold demand may continue to increase, but it is not yet certain how sensitive this demand is to prices. However, we believe that the impact of gold prices on the central bank’s demand is limited, and rising prices will not necessarily prevent the central bank from continuing to increase its gold holdings. Fourth, we believe inflation will become more persistent as market expectations for a fall in inflation to 2.5% may materialize in the short term but not in the long term, forcing gold to reprice lower real yields. At the same time, global multi-polarization has led to heightened geopolitical risks. If the aforementioned factors eventually push gold prices above expectations, the re-entry of less-involved investors will provide support for gold.
Technically, the price of gold is currently trading in an uptrend channel with a width of $200, which started from the low in November last year, when the price of gold broke through $1730, confirming the triple bottom pattern. After a strong rally in March and April sparked by a decline in short-term interest rates and yields in response to the banking crisis, gold rallied to a record high last week after a period of consolidation. Gold’s current key support level is still in the 1990-2000 range, followed by $1950. The main resistance level is at $2,050. Only after breaking through this resistance will we see the next key resistance at $2,100.
Ole Hansen, Head of Commodity Strategy, Saxo Bank
Gold remained volatile in a large range on Thursday, seeking further clear trends. In my opinion, under the current circumstances, $2,000 is an important and strong support. If the price of gold falls below this level, it will look at the 50-day index moving average, which is currently around $1,976. If the price of gold unexpectedly falls below this level, I will start to doubt the rise of gold, and think that the price of gold may fall further to $1950, or even $1900, and then the key 200-day index moving average.
In the upward direction, if the price of gold breaks through $2,100, it will open up more room for growth, and more investors may “buy and hold”.
Overall, the current gold trading is full of noise, and the trend is likely to continue so we may continue to see a lot of short-term volatility, but I still prefer to buy the dip strategy. Affected by the bond market, there is still a lot of demand for gold. At the same time, many investors are concerned about wealth preservation, in which case gold is one of their preferred targets.
Kitco analyst Jim Wyckoff
Gold prices were lower in midday U.S. trading Thursday, while silver prices fell sharply. Fresh jitters in the banking sector and weak U.S. economic data on Thursday revived fears of an impending recession. Gold and silver bulls were in some tears as safe-haven demand for gold did not fare any better amid heightened market uncertainty. The U.S. index and U.S. bonds have seen greater demand driven by safe-haven buying, but I think that if the banking turmoil continues to heat up in the short term, the safe-haven demand for gold and silver will be better. On the other hand, traders and investors remained focused on comments from lawmakers about extending the US debt ceiling.
Technically, June gold futures bulls have the solid overall near-term technical advantage, with the daily chart showing prices are in a two-and-a-half-month-old uptrend. Bulls’ next upside target is an all-time high of strong resistance at $2,085.4, first seen at Thursday’s high of $2,047.6, followed by this week’s high of $2,056. The near-term downside target for bears is to break below strong support at $1,980, first seen at $2,007, followed by $2,000. (Note: Gold June futures prices are currently about $5 higher than spot gold.)
