Concerns over credit conditions and debt ceiling discussions will keep gold prices at historic highs for the next few months, analysts say.
US data was good, gold prices fell
cryptocoin.com As you can follow on , the gold market slumped on Friday as banking fears subsided and the US April jobs report came in better than expected. The US economy employed 253,000 people last month. In addition, the unemployment rate in the USA fell to 3.4%, the lowest level in the last 53 years. CompareBroker.io principal analyst Jameel Ahmad comments:
The job market is showing clear resilience despite the sharp rise in US interest rates last year. This resilience will give Fed policymakers patience to continue watching economic data before making any decisions on the future monetary policy outlook.
Overall risks still high
Comex gold contracts for June delivery fell 1.3% on the day to trade at $2,024.30 an ounce. The drop came after Comex prices tested record levels at $2,085.40 earlier this week. Edward Moya, senior market analyst at OANDA, comments on the latest developments as follows:
There is a perception that banking concerns have disappeared today. But that’s a story that won’t go away anytime soon. Overall, the risks are still high. In addition, credit conditions will continue to tighten. And the stakes will return as US President Joe Biden gathers for debt ceiling talks.
The gold market will not face any serious obstacles
Capital Economics commodity economist Edward Gardner says the gold market will not face a serious hurdle until the debt ceiling and banking sector turmoil are resolved.
Worries about banks and the US debt ceiling will keep the gold price historically high over the next few months. “However, once these concerns subside, we think longer-term headwinds will kick in.” “Our new indicator of financial stress in advanced economies shows that the gold price is benefiting from safe-haven demand related to banking problems.
There are some parallels between now and 2011
Washington is currently in a stalemate over raising the US debt ceiling. This increases the risk of a default by June 1. RBC Asset Management warned this week that this year’s political and economic background is “one of the most challenging”. The last year the debt ceiling really shook the markets was 2011, and there are some parallels between then and now. Edward Gardner comments:
In 2011, the US reached its debt ceiling on May 16. After long political wrangling, he passed legislation on 1 August to raise the ceiling. At that time, the gold price had increased by 9% compared to the previous month. This was probably due in part to US government funding concerns. The same concerns have of course resurfaced recently.
The outlook for gold is bullish
According to Capital Economics, these issues are likely to plague the markets for the next few months. This will keep the gold at $2,000. Moya says it will be difficult to recapture record levels in the short term. However, he states that gold will likely reach this level again. In this context, Moya makes the following statement:
Inflation will prove to be sticky. This would justify the Fed to maintain a higher stance for longer. However, the outlook for gold is bullish. Can we recapture the record level? There is good evidence that we will eventually catch up.
The drivers of gold price
Gold’s key support is currently at $1,990. Likely, initial resistance will be at $2,040. “The Fed is done for now,” Moya said. The June meeting will likely be a pause. “The main drivers of gold will be the debt ceiling, banking concerns and recession risks.”
Next week’s data
- Wednesday:US CPI
- Thursday:Bank of England interest rate decision, US unemployment claims, US PPI
- Friday:Michigan consumer sentiment
