The gold market was hit by optimistic economic data and stubbornly high inflation. Gold wrote a loss for the third week in a row. Markets expect a 25 basis point rate hike in June after faltering expectations.
Negative conditions for gold
cryptocoin.com As we mentioned above, Comex gold contracts for June delivery are currently trading at $1,945.80 per ounce. Accordingly, gold aims to close the week with a decline of $35. Despite the sales, gold is still up more than 6% year-to-date. Bart Melek, head of global commodity strategy at TD Securities, said that macro data was the main factor that put pressure on gold at the end of the week. According to Melek, durable goods, personal spending and PCE inflation measures are all above expectations. So not only did inflation fall, the core PCE price index, the Federal Reserve’s preferred measure of inflation, rose to 4.7% in April.
Nearly 5% inflation is too high for the Fed to justify a pause in June. After all, the market is pricing it out. Everett Millman, precious metals specialist at Gainesville Coins, says the market expects a high interest rate hike. Millman said recent market expectations see a 60% chance of an increase at the meeting on June 13-14. At this point, Millman said, “This is a big reversal from earlier predictions. The speed with which this kind of repricing takes place is catching the attention of the gold market. Rapid changes in expectations lead to more volatility.”
good performance of the dollar
On top of that, the US dollar performed well and gold responded with a bearish move. Melek said, “We think that gold prices will be at low levels for most of this quarter and possibly the beginning of the third quarter. The market mispriced the Fed’s intentions.” is emphasizing. With the Fed’s focus on inflation, not much will affect the central bank before the June meeting. Millman thinks that the decline in the credit rating of the USA will reflect positively on its bottom. For this reason, he added that the debt limit debate is an issue that should be watched closely.
Meanwhile, negotiations to raise the US government’s $31.4 trillion debt limit before June 1st hit some snags on Friday. Previously, Democratic and Republican negotiators seemed to have come close to an agreement to lift the debt limit for two years while limiting some spending. Garret Graves, the Republicans’ chief negotiator, told reporters that they were making progress. However, Graves added that although they made progress on some key points, there were also important issues that they could not resolve.
Stunning statement from Commerzbank
The gold price is under pressure as interest rate cut expectations dwindle. However, Commerzbank economists think the potential for further downside is limited. The following statements are noteworthy in the statement made by the bank:
“Hopes for any rate cuts in the US in the near future have faded this week. As a result, this situation put pressure on the gold price. A new US labor market report will be released by the end of next week. Should the report show further cooling, as many observers expected, this would dampen interest rate expectations, especially if a settlement in the US debt dispute is reached and economic indicators are allowed to re-set the interest rate trajectory. By contrast, the development of physical demand in Asia is unlikely to affect prices, as evidenced by Swiss Gold exports and China’s Gold imports from Hong Kong. Exports and imports will likely be slightly weaker, especially given the high price level.”
Gold price levels to watch
Gainesville Coins precious metals expert Everett Millman said the next level of support for gold is $1,940 an ounce. Below that, investors should watch $1,915 and $1,900. Analysts do not rule out a drop to $ 1,900. Angel says definitive support is around $1,900-1,896. Frank Cholly, senior market strategist at RJO Futures, says it’s too early to look for a bottom in the price of gold. Cholly’s highlights are as follows:
“The market is telling us we will see another rate hike in June and maybe July. Gold doesn’t like it. Traders will find value somewhere in the $1,950-1,925 range for August futures. In this case, the market will form a baseline before it expects to rise.”
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