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"The Gold Market Faces Monthly Loss Amid Debt Ceiling Vote and Fed's 'Hawkish Pause' Talks"
In May, the gold market experienced its first monthly loss since February, with prices down approximately $36. Investors are closely monitoring the crucial vote in Congress to lift the debt ceiling, while some Federal Reserve officials advocate for a "hawkish pause" during the June 13-14 meeting.
The House of Representatives is scheduled to vote on a bill to raise the $31.4 trillion debt limit on Wednesday, aiming to avoid default before the June 5 deadline set by Treasury Secretary Janet Yellen. Voting is expected to take place in the late afternoon, concluding before 9 pm ET.
Edward Moya, a senior market analyst at OANDA, anticipates some resistance from both ends of the political spectrum, but he believes the bill will likely advance. Although passing the bill might avert a default, Moya notes that the proposed legislation includes significant spending reductions, which could negatively impact the economic outlook and potentially trigger a more severe recession.
The gold price is influenced not only by the debt deal but also by the Federal Reserve's decisions in June and July. Market expectations have undergone substantial shifts in recent weeks.
Currently, the CME FedWatch Tool indicates a 70% probability of a pause in the June meeting. However, just a few trading sessions ago, the market was leaning towards a 25-basis-point hike.
U.S. rate futures have also adjusted, now pricing in a 70% chance of a pause by the Fed, which is a reversal from earlier in the session, according to Refinitiv's FedWatch.
These shifts in expectations were triggered by remarks from several Fed officials who expressed support for pausing or skipping a rate hike in June, contrasting with previous hawkish sentiments.
Philadelphia Fed President Patrick Harker stated that he supports skipping a rate hike but acknowledged that Friday's employment data could influence his perspective. Fed Governor and vice chair nominee Philip Jefferson also emphasized the benefits of postponing a rate hike to allow for further data evaluation.
However, not all Fed officials share the same view. Federal Reserve Bank of Cleveland President Loretta Mester sees no "compelling" reason to withhold rate increases and suggests raising rates before reassessing the economic trajectory.
In the meantime, macro data releases continue to support a tightening stance by the U.S. central bank. The annual core PCE price index, the Federal Reserve's preferred inflation measure, accelerated to 4.7% in April, surpassing the consensus forecast of 4.6%. Additionally, the latest JOLTS job openings data indicates a tight labour market.
All eyes are now focused on the U.S. April nonfarm payrolls report, set to be published on Friday. Analysts emphasize that if the report confirms the strength of the labour market, it could challenge the notion that the Fed is done with hiking rates.
Despite gold's inability to sustain its gains after reaching record highs earlier in May, analysts point out that it remains positive that gold can trade above $1,950 per ounce. However, there is still a risk of a retreat to $1,900, warns market analyst Rupert Rowling from Kinesis Money.
Assuming the U.S. ratifies the new debt ceiling agreement, attention will shift to the U.S. jobs and inflation data ahead of the Federal Reserve's June interest rate decision in the middle of the month.
As of the time of writing, August Comex gold futures were trading at $1,981.20, indicating a modest increase of 0.21% for the day.
inputs from/ Tradingview
