What’s Next for Gold After FED President’s Statements?

Gold ended the week with a $30 drop, its worst performance since February. However, the recovery from Friday afternoon keeps the uptrend of gold alive. Analysts think gold price could ‘easily’ reach $2,000 next week if debt ceiling problems persist

Powell signals pause, gold market rebounds

cryptocoin.comAs you follow, Federal Reserve Chairman Jerome Powell said interest rates may not have to rise very much due to tighter credit conditions after the turmoil in the banking sector. After that, the gold market recovered. At the Thomas Laubach Research Conference on Friday, Powell made the following statement:

Financial stabilization tools helped calm conditions in the banking sector. On the other hand, developments here are contributing to tighter credit conditions and will likely put pressure on economic growth, hiring and inflation. As a result, our policy rate may not need to rise as much as it normally would to meet our targets. Of course, the scope of this is extremely unclear.

This was probably a sign that the Fed would pause in June. According to the CME FedWatch Tool, market expectations for a rate hike in June fell from around 50% to 20% after Powell’s comments. The news calmed gold sellers after market participants began pricing in another 25bps rate hike next month and cut their bets on rate cuts in the second half of the year.

Gold will be in ‘wait and see’ mode!

The Fed hiked interest rates for the tenth time in a row at its May meeting. Thus, it raised the fed funds rate to the range of 5-5.25%, the highest level since mid-2007. The Fed increased interest rates by 5% in a little over a year. The next monetary policy meeting will take place on 13-14 June. Alongside shifting interest rate expectations, debt ceiling progress was also hit as the federal government’s talks to raise the $31.4 trillion debt cap stalled Friday afternoon. Edward Moya, senior market analyst at OANDA, comments:

Wall Street thought we’d see the bill text over the weekend or early Monday, with a potential vote midweek. Now that seems less likely. It can also increase the risk of not getting a deal before June 1, called date X.

Moya says the debt ceiling issue will heat up again, given the divisiveness of US politics. In this context, the analyst said, “You will start to see a little more difficulty in the negotiations. Gold will be in a wait-and-see mode to figure out which part of the economy will break. The consumer is clearly weakening. A lot of data still supports recession,” he comments.

Interest rate cut bets down

Everett Millman, precious metals specialist at Gainesville Coins, says interest rate cut expectations are waning. He notes that this is a development that will continue to put pressure on gold. Based on this, Millman makes the following comment:

Almost everyone in the market believed that the Fed would cut interest rates in the second half of this year. But as inflation hasn’t dropped that low, the economy is holding up and the unemployment rate is low, big traders are easing their bets on these rate cuts.

Everett Millman states that with gold testing record levels two weeks ago, traders have also taken some profits off the table. He adds that this accelerates the decline.

An interesting time with a lot of risk on the table

Edward Moya admits it’s been a disastrous week for yellow metal overall. But he also states that it ended on a positive note. Moya makes the following comment while expressing her views on this issue:

People are rethinking whether we’re heading towards a recession that’s killing safe-haven demand. It’s been an interesting time when there’s really a lot of risk on the table, like the banking crisis, the debt ceiling, the big layoffs announcements.

What’s next for the gold price?

Everett Millman’s basic scenario is that gold will recover from here. After all, it’s something he’s done multiple times over the past year. “If you look at the pattern, gold continues to make higher lows and higher highs. “Although I wouldn’t rule out a drop to $1,900, my baseline scenario is to see gold recover as it has in the last few sell-offs,” he says.

Millman says the Fed is likely to take a pause in June after Powell’s comments. He states that this gives the US central bank a forward-looking option. In this context, the analyst said, “Remember that it takes 12-18 months for interest rate increases to really start to appear in economic data. The Fed has increased interest rates aggressively in a very short time. We won’t see the results until the second half of this year. A pause in June would be reasonable,” he comments.

According to Millman, gold’s close resistance will be $1,980 followed by $2,000. The analyst notes that a solid support level is $1,960-50. He notes that if that fails, $1,900 will likely kick in.

Moya is also facing support at $1,950 and resistance at $2,000. Prices could easily stabilize above the $2,000 level next week if debt ceiling talks continue to struggle, according to the analyst.

What will be on the agenda next week?

Markets are closely watching the FOMC May meeting minutes next week, the US GDP update and the Fed’s preferred PCE inflation indicator. “Inflation … looks set to remain high,” said James Knightley, ING chief international economist. This is likely to keep the market nervous about a possible June rate hike,” he said. In this direction, the economist continues his statement as follows:

However, the ground of activity continues to soften. Moreover, real consumer spending will remain flat in April compared to the previous month. Recession risks continue to be high due to the rapid tightening in credit conditions following the recent bankruptcies. In addition, we still foresee the potential for interest rates to fall before the end of the year.

• Tuesday: US new home sales.
• Wednesday: FOMC May meeting minutes.
• Thursday: US Q1 GDP, US jobless claims.
• Friday: US PCE price index, US durable goods orders.

Contact us to be instantly informed about the last minute developments. twitter‘in, Facebookin and InstagramFollow and Telegram And YouTube join our channel!