1. Fed minutes highlight internal divisions
The minutes of the Fed meeting showed that officials were divided on the pause in raising interest rates in June, with some participants saying that further policy tightening may be needed at future meetings. Officials agreed that inflation was too high and falling more slowly than expected, stressing that it was data-dependent and that a rate cut was unlikely. In addition, the Federal Reserve urged lawmakers to raise the debt ceiling in time to avoid chaos in the financial system and the overall economy.
Fed Governor John Waller said he supports raising interest rates in June or July and hopes not to stop until inflation is under control, adding that his current views on Fed interest rates are not affected by the debt ceiling. The best-case scenario is that the Fed won’t consider cutting rates until 2024, Atlanta Fed President Bostic said.
2. U.S. debt ceiling issue update
On Wednesday local time, the White House and Republican negotiators renegotiated on the debt ceiling. House Speaker McCarthy later said that the situation had made slight progress but there were still differences, and an agreement in principle could be reached over the weekend.
Despite this, the market’s worries have further heated up. Fitch put the “AAA” rating of the United States on the negative watch list and may downgrade the AAA rating of the United States, but still said that the probability of default is very low.
U.S. Treasury Secretary Yellen reiterated that the Treasury Department may run out of cash by June 1, the department is committed to pushing for a deal, and is not preparing for the time of default. She will testify before the committee on June 7, after conservative Republicans publicly questioned June 1 as debt ceiling X Day.
The U.S. Treasury’s cash balance rose $8.2 billion to $76.5 billion on May 23, the third straight day of increases, easing some concerns over the debt-ceiling impasse and the risk of government default.
MARKET VIEWPOINTS
Precious Metals Trader SchiffGold
Once fundamental factors fail to push gold prices to new all-time highs, it is only a matter of time before gold prices fall back. Price action has gone too far. At present, many indicators of gold are mostly neutral and bearish. While there were some slightly bullish indicators, none were strong enough to send a clear signal. This suggests that gold prices could continue to trade lower until the right catalyst is found to reverse the trend. The biggest catalyst for gold today will be how the Fed responds to the next crisis. Until then, gold will face downward pressure.
Specifically, the price of gold has fallen below the 50-day moving average, but the current level is not enough to constitute a consolidation. The 200-day moving average is still well below the current price and the 50-day moving average due to the rapid rise. Although the market is in a bullish stance, the gap suggests further correction is needed in gold prices. In addition, judging from the open interest of Comex gold futures, the price of gold was already rising before speculative traders entered the market. pushed to a record high. And as they closed their positions, the gold price was hit hard. This shows that the rise was not driven by futures speculators, but the fall was. Gold’s open interest is above the 50-day moving average and the 200-day moving average, which means that open interest may fall further.
But that’s closer to a bottom than a top. With all the bad news already priced in, the downside for gold appears to be limited, expecting a worst-case scenario where gold could test $1880 but should hold. The current pullback is setting the stage for a strong and healthy rally ahead that will eventually push gold prices to another breakout. In addition, the trading volume of gold has been declining in the past few weeks, and the bears have also taken advantage of this opportunity, although the lower trading volume also suggests that gold may rebound in the short term.
TD Securities Analyzes Gold CTA Positions
Gold price action hit CTA trend traders again, forcing algos to unwind some recently established long positions yesterday. Still, there are signs that the sell-off in precious metals is coming to an end. Gold bulls have been keeping their position size in check, but systematic trend followers have not had a low barrier to liquidating additional positions. What’s more, traders haven’t chased bulls into rallies, which is in stark contrast to typical recessionary strategies. Pressure on the banking sector persists and the data could slow further, reinforcing expectations for a rate cut cycle. The recent sell-off and short selling may end up adding momentum to further gains in gold prices instead.
Fxstreet Analyst Anil Panchal
U.S. Treasury yields and the dollar strengthened amid worries about a U.S. default and uncertainty over the Federal Reserve’s next move, weighing on gold prices.
On Wednesday, US House of Representatives Speaker McCarthy said they were sending negotiators to the White House in an attempt to conclude debt ceiling negotiations. Likewise, U.S. Treasury Secretary Yellen said they will work to improve the precision of Day X and noted that they will not be able to pay some obligations. There were also reports that members of the U.S. House of Representatives would be on holiday after Thursday and debt ceiling talks would not resume until Monday, adding to investor concerns that a deal would not be reached before May.
On the other hand, the latest FOMC meeting minutes showed that the Fed was divided, with some believing that a rate hike was appropriate while others argued for a shift in monetary policy. Recently, Atlanta Fed President Bostic said that we are in the hard part of taming inflation. At the same time, Fed Governor Waller mentioned that he does not support stopping interest rate hikes unless there is clear evidence that inflation is falling towards the 2% target.
Against this backdrop, the U.S. dollar index rose for a third straight day to its highest level since March 20, while 10-year U.S. Treasury yields also rose to their highest level since mid-March, exerting downward pressure on gold prices.
On Thursday, a series of economic data such as the number of initial jobless claims in the United States and the revised value of real GDP in the first quarter of the United States will be released, which may trigger the market. However, the market will still mainly focus on the US debt ceiling issue for a clear direction of the transaction.
After hitting the downtrend line for nearly three weeks, the price of gold pulled back and fell to an intra-month low near $1,952, approaching the January high of $1,950 that we are concerned about. It is worth noting that gold continues to trade below the 50-day moving average. Combined with the bearish signal of the convergence of the moving average and the downward trend of the MACD indicator, gold bears have regained their confidence.
If gold falls below the $1,950 support, it is likely to look for support at the 100-day moving average, around $1,933. If gold eventually falls below the 100-day moving average, it is likely to test the upward trend line that started in early November, currently near $1924, which will be an important point to clarify the direction of gold.
On the contrary, if the closing price of gold breaks through the above-mentioned resistance line (currently around $1968), and recovers the 50-day moving average resistance level of $1992, or even the round-number level of $2000, the gold bulls can be revived. Meanwhile, a break above April’s highs of $2,048 and $2,050 could spur further gains for gold, which would then re-test the all-time high around $2,080 hit earlier this month. Overall, the price of gold is still below the $2,000 mark and the situation is still in the hands of the bears.
Goldman Sachs Forecasts Gold Trends
While the prospect of a recession is usually bullish for gold, the price of gold has stalled around $2,000 recently. The key reason for this is that the situation for US regional banks is proving to be far less worrisome than the market initially thought, with recent data even suggesting that our economists’ modest forecast for a downturn in US growth may have been too pessimistic. That said, we remain bullish on gold as we move away from the Fed’s hawkish stance as the US economy appears to be slowing without affecting growth elsewhere. This should support a rise in investment demand for gold, which has been virtually non-existent over the past two years This trend will continue to dominate gold demand. All in all, we maintain our target price for gold at $2,050.
