1. Progress on the US debt ceiling issue
According to people familiar with the matter, a stripped-down version of the U.S. debt ceiling agreement has taken shape, with the gap between the two sides’ discretionary spending proposals less than $70 billion, and Republicans willing to make concessions on defense spending. McCarthy said that no agreement was reached on Thursday and that the weekend will be overtime. The Treasury Department is already preparing contingency plans in case the debt ceiling is breached.
The Treasury’s cash balance fell to $49.5 billion on Wednesday, down from $76.5 billion the previous day and $140 billion on May 12, according to Thursday’s data. If the debt ceiling is not lifted or raised in time, the federal government could run out of money early next month.
Following Fitch, DBRS Morningstar placed the US AAA rating on Negative Watch. Moody’s said that June 15 is crucial to the AAA rating of the United States. If the government cannot pay interest by then, the agency will downgrade the US rating by one level from AAA to AA1.
2. Related to the Federal Reserve
The number of people filing for unemployment benefits in the United States recorded 229,000 in the week ending May 20, far below expectations and a new low since the week of April 22, 2023; at the same time, the annual rate of GDP in the first quarter was revised up from 1.1% to 1.3%.
After the release of the data, the swap market fully priced in a Fed rate hike of 25 basis points before the July meeting. The possibility of raising interest rates by 25 basis points in June has exceeded 50%. By the end of the year, the interest rate will be cut by about 37BP to 4.95% from the implied peak rate. .
3. Boston Fed President Collins said the Fed may have reached or is close to pausing interest rate hikes She also commented on the debt ceiling issue that not raising the debt ceiling could do a lot of damage2
UBS Group AG may delay the deal to buy Credit Suisse because it has not yet reached an agreement with the Swiss government on the specific terms of the government guarantee, according to people familiar with the matter.
MARKET VIEWPOINTS
Fxstreet Analyst Anil Panchal
At the opening of today’s session, gold prices are still hovering around the February low of $1,941. After falling for two consecutive days, gold prices are still under pressure. The weakness in the precious metal could be related to risk aversion in the market and a string of stronger-than-expected U.S. economic data, which favored a stronger dollar.
After the release of stronger-than-expected U.S. economic data, Richmond Fed President Barkin said the central bank is in a state of testing and learning, having determined how slowing demand could reduce inflation. On the other hand, Boston Fed President Collins said that the Fed may be at or close to the time to pause interest rate hikes. Gold continued to be weighed down by a higher dollar and Treasury yields amid stronger U.S. data and mostly hawkish comments from the Federal Reserve.
Aside from the U.S. data and the Fed’s comments, concerns that U.S. policymakers won’t be able to reach an agreement on the U.S. debt ceiling, and the latest talks suggesting a deal remains elusive, also pushed the dollar and U.S. bond yields higher
Overall, gold remains vulnerable to further losses, driven by safe-haven demand and hawkish bets on the Federal Reserve, backed by upbeat U.S. economic data and U.S. debt ceiling talks.
On the 4-hour chart, after the price of gold fell below the low point in early April, the current first resistance level is around $1956. The MACD indicator issued a bearish signal. The price of gold continued to trade below the 50-period SMA and the downtrend line (about $1975) , both provide reasons to continue to be bearish on gold. However, with the RSI falling to 30.27, the downside may have been relatively limited and gold prices may start to rebound after hitting the 61.8% Fibonacci retracement of the February-May rally (around $1909). But if this level also falls, the mid-March retracement low (around $1,885) will be the last line of defense for the bulls.
On the other hand, the aforementioned resistance around $1,956 and $1,975 could prevent gold bulls from regaining control. Even if it breaks through, the psychological barrier of $2,000 close to the 200-period SMA and last month’s high of $2,050 will hinder the upward momentum of gold. Only after a breakthrough, gold is expected to retest the historical high of $2,080.
IG Group
On the fundamentals of gold, the minutes of the previous Fed meeting showed that the Fed was divided on raising interest rates and said it needed to “maintain more options”, suggesting that subsequent decisions depend on data. The current market pricing is now favoring a 25 basis point hike by the Fed, but not at the upcoming June meeting, but in July, and at the last meeting of the year in December, whether rates will drop below 5% remains to be seen is the probability of flipping a coin.
US Treasury yields are moving higher, as are real yields, and breakeven inflation has eased slightly (although 5y5y forward inflation expectations rose to their highest since late last year). Investors and traders are anxiously awaiting the latest news on the lack of agreement on the debt ceiling and Fitch putting the US ratings on negative watch.
On the technical side, the overnight gold price has broken the 1944.94 support, the next support is at 1929.95, and the resistance focuses on 1974.92 and 1989.91.
Ed Moya, Senior Market Analyst, Oanda
The stronger-than-expected U.S. economic data released last night is likely to continue to fuel inflationary pressures and increase data support for the Fed to further tighten monetary policy. In this case, gold prices continued to weaken. The market has already started pricing in another rate hike by the Fed as the consumer market remains strong and this sentiment is unlikely to change any time soon as the labor market is only slowly weakening. The U.S. dollar continues to rise, but that may prove difficult to sustain once the debt ceiling drama gets worse. At the same time, if short-term Treasury yields continue to rise, it will eventually put pressure on the dollar’s rise.
If stocks continue to rise, gold is likely to remain under pressure, with key support coming from the $1950 area (which has now been broken). Today’s inflation data may not bring any positives for gold, but market pressure on the debt ceiling may bring some safe-haven funds to gold.
Kitco analyst Jim Wyckoff
In the U.S. session on Thursday, the U.S. economic data was better than expected, the Fed’s interest rate hike in June was expected to increase, and the U.S. dollar strengthened.
Gold and silver prices fell, with gold hitting a nine-week low and silver hitting a two-month low.
The annualized quarterly rate of actual GDP in the first quarter of the United States was revised higher than expected, with the announced value at 1.3%, which was higher than the expected growth of 1.1%, and the previous value was an increase of 1.1%. In addition, the number of Americans filing for unemployment benefits was much lower than market expectations. And the US House of Representatives Speaker McCarthy and President Biden have not reached an agreement on the debt ceiling issue, which also keeps the market in anxiety. However, McCarthy said negotiators were making progress. Reuters also reported that the Democrats and Republicans were close to reaching a deal, which may have also added some selling pressure to the precious metals market.
From a technical point of view, the price of gold futures for June delivery hit a nine-week low today, and the near-term technical advantage that bulls have is fading. Gold prices are in a three-week-old downtrend on the daily bar chart, with bulls targeting a close above $2,000, with first resistance near yesterday’s high of $1,965.40 and then this week’s high of $1,987.90. While the bears aim to push the price below $1,900, first support is seen at yesterday’s low of $1,939.20 and then at $1,925. (Note: The current price of spot gold is very close to the price of June gold futures.)
July silver futures also fell to a two-month low. The silver bears already have the technical advantage. Bulls will aim to close prices above $24.50, with initial resistance seen at yesterday’s high of $23.26 and then Wednesday’s high of $23.65. While the bears aim to push the price below $22.00, the first support is at $22.75 and then at $22.50. (Note: The current price of spot silver is about $0.1 lower than the price of July silver futures.).
