1. Debt ceiling talks to resume today
(1) The U.S. debt ceiling negotiations were interrupted for the second time last Friday and no progress was made
Biden is considering using the 14th Amendment to lift the debt ceiling.
(2) U.S. Treasury Secretary Yellen warned that the current situation complicates the use of the 14th Amendment to the Constitution and reiterated that June is the “hard deadline” for the debt ceiling
(3) Hopes for a breakthrough before Monday’s open to reassure markets were dashed as the Democratic administration “backtracked” in budget deal talks, House Speaker McCarthy said.
(4) Biden and McCarthy will meet on Monday, and representatives of the two sides will resume negotiations at 6:00 am Beijing time.
2. Powell hints at an inclination to pause interest rate hikes in June
Fed Chairman Jerome Powell said inflation is now well above the Fed’s target, but policy rates may not have to rise as high as they have in the past because of tighter bank credit conditions. As of now, the CME “Fed Watch” tool shows that the market expects the probability that the Fed will pause interest rate hikes in June has risen to 84%. Minneapolis Fed President Neil Kashkari, who is regarded as the “new eagle king”, also said that he may support a pause in raising interest rates in June.
3. According to CNN, U.S. Treasury Secretary Yellen told bank CEOs that more consolidation may be necessary as the banking industry is still dealing with the crisis. The comments raised concerns that more banks could fail.
4. U.S. bank deposit flight continues
Federal Reserve data released on Friday showed commercial bank deposits fell by $26.4 billion to a seasonally adjusted $17.1 trillion in the week ended May 10, the third straight weekly decline and the lowest level in nearly two years. . Meanwhile, some $13.6 billion flowed into U.S. money market funds in the week ended May 17, with total assets hitting a record high of $5.34 trillion, according to the Investment Company Institute of America.
5. Regarding the conflict between Russia and Ukraine, the Russian Ministry of Defense announced on the 21st that Russia has fully controlled Artemovsk (known as Bakhmut in Ukraine), an important town in the Donetsk region. But the Ukrainian side denied the Russian side’s statement on the same day.
6. G7 agrees to new sanctions on Russia
G7 leaders issued a joint statement on the 19th, agreeing to expand sanctions against Russia, further curb Russia’s use of the international financial system, and promised to provide further support to Ukraine. The U.S. Departments of Commerce and Treasury announced additional Russia-related sanctions, blacklisting nearly 200 individuals, entities, ships and aircraft. In addition, Biden announced $375 million in military aid to Ukraine.
MARKET VIEWPOINTS
GAIN Market Analyst Fawad Razaqzada
U.S. inflation has peaked, but policymakers remain cautious. While the odds of a June rate hike are low, the chances of another rate hike in June rose back to 36 percent on Friday, amid continued hawkish comments from Fed officials and a surprisingly strong labor market. In the Fed’s view, the U.S. economy has not cooled enough to warrant a policy shift, but that hasn’t stopped markets from betting the central bank will cut rates several times before the end of 2023.
So weaker economic data could weigh on the dollar and boost gold, but gold would need to get back above $2,000 to signal a resumption of the bullish trend. This week, the United States will announce the April PCE data, which may be the key to determining the next move of gold prices.
Vice President, Commodity Research, Kotak Securities
Gold prices have been in a sustained downward trend last week, recording the biggest weekly drop since February 2023. The reason is that active negotiations on resolving the US debt ceiling crisis have suppressed safe-haven demand, while hawkish comments from Federal Reserve officials have brought the market back to normal. Pricing expectations for a June rate hike by the Federal Reserve lifted the dollar and U.S. Treasury yields.
Market focus this week is on the Fed meeting minutes, the Fed’s preferred PCE data and the flash PMIs from the US, UK and Eurozone. Uncertainty over the U.S. debt ceiling could be resolved this week or next, when the focus will once again turn to economic data and the outlook for monetary policy. Last week’s better-than-expected U.S. data and optimism over the debt ceiling prompted hawkish comments from some Fed officials, but we still don’t expect another rate hike in June as most Fed officials remain on the sidelines. In addition, the minutes of the Fed meeting may also indicate that the possibility of the Fed pausing interest rate hikes has increased. And PCE may indicate that inflationary pressures have eased, so gold prices may continue to rise this week.
Last week, COMEX gold futures once fell below the strong support of 1970 US dollars, but the closing price of the week returned to above 1970, and the risk of gold prices falling further to 1938 US dollars has been weakened. However, COMEX gold needs a weekly close above $2,000 to indicate that a short-term bottom has been formed. (Note: The current price of COMEX gold futures is about $2 higher than spot gold.
Fxstreet Analyst Anil Panchal
Gold prices got a boost last Friday after troubled talks on the U.S. debt ceiling and a retreat in the dollar following a speech by Federal Reserve Chairman Jerome Powell.
On the one hand, gold benefited from market uncertainty about the U.S. debt ceiling, which President Biden will continue to discuss with House Speaker McCarthy on Monday after he said they had a productive phone call. However, Republicans said the situation was not optimistic and had suspended the meeting.
On the other hand, the weakening of interest rate hike expectations also boosted the price of gold. Federal Reserve Chairman Jerome Powell on Friday highlighted concerns about inflation, but tightening credit standards due to the banking crisis eased pressure to raise interest rates, which reignited bets on a June Fed rate hike, sending the dollar The price of gold recovered under pressure. But Minneapolis Fed President Neil Kashkari also ruled out market forecasts in the interview that the Fed would end rate hikes, although he backed the Fed to leave rates unchanged at its next meeting.
Although investors pay more attention to the US debt ceiling issue and FOMC meeting minutes, this week’s May PMI preliminary value and PCE data may provide new clues to the trend of gold prices. In view of the recent strong US data and the Federal Reserve’s hawkish speech last week, if the US PMI index in May and the core PCE price index in April improve, gold prices may continue to fall. The central question, however, will remain how U.S. officials address an impending debt default.
Judging from the trend of gold prices, although the price of gold has fallen for two consecutive weeks, it rebounded last Friday, and this rebound can find clues from technical indicators. Looking at the 4-hour chart, RSI has fallen into an extremely oversold range, and MACD has a golden cross signal, indicating that gold prices need to rebound and correct. However, a close to the downtrend line near $1998 and the 200-period moving average near $2005 will limit further recovery in gold prices. If this price is broken, the gold price may step back on the support line since mid-March (currently around 2016 US dollars), and the bulls who stand on this trend line will regain control of the gold price trend, thereby promoting further strengthening of the gold price. From another perspective, last week’s low around $1,950 is a key position for gold bears to enter the market. The 50.0% and 61.8% Fibonacci retracement levels of the gold price from the March low of $1,804 to the May high of $2,080 are around $1,943 and $1,911, which can be used as target points for the downside of gold prices. In general, although the price of gold has signs of continuing to rise in the short term, as long as the price of gold remains below $2017, gold is still in a short market.
Fxempire Analyst Aaron Hill
Last week, a number of Fed officials commented on next month’s rate decision. Fed Logan said he did not think the current data justified a pause in rate hikes. The Fed’s “Eagle King” Bullard also said that he may support the Fed to raise interest rates again in June. But Fed Chairman Jerome Powell took a somewhat dovish stance on Friday, saying interest rates may not have to be as high as expected because tighter bank credit may have eased pressure to raise rates, weighing on the dollar and boosting gold prices vibration.
Markets are pricing in the next FOMC rate decision, with an 82% chance of a pause on June 14 and an 18% chance of a 25 basis point hike. However, the probability of a rate hike at the June meeting in early May was completely dismissed and this has been a driver of the dollar’s recent strength (market repricing rate hike expectations). U.S. PCE data for April, to be released on Friday, is a key piece of data that could re-affect market pricing for a June rate hike.
Regarding the trend of gold, from the weekly chart, the support around $1949 may be limited, and the price of gold may weaken further in the next few weeks, with a target support around $1807, but this does not mean that the support around $1949 can ignored.
From the daily chart, last week’s decline in gold prices broke through the support of the upward trend line starting from $1934 and the support of the 50-day moving average (currently around $1987). Gold managed to bounce back from a weaker dollar on Friday before falling below $1,949 and pushing prices back around the 50-day moving average. Combining the weekly and daily charts, the upward trend line support extended from the low of $1616 is also at $1949. Therefore, $1949 can be regarded as an important support.
In the short term, after rebounding from around $1955, a bearish configuration of AB=CD is formed. The 1.618% Fibonacci extension near $1984 will form a resistance position, and the short target will look at the 38.2% and 61.8% Fibonacci Near the retracement of Bonacci, which are around $1971 and $1964 respectively. A break below these levels would look towards longer-term support at $1,949.
However, if the gold price breaks through the resistance level of $1984, the follow-up resistance will be around $1991, and if it stabilizes above this price, it will look towards the round psychological mark of $2000.
