Gold price to keep trading at historically high levels as markets monitor debt ceiling debate and credit conditions – analysts

Concerns about credit conditions and the debt ceiling debate will keep gold prices at historically elevated levels for the next few months, according to analysts.

The gold market retreated Friday as the banking fears subsided and the U.S. April employment report came in better than expected.

The U.S. unemployment rate fell back to a 53-year low of 3.4%, while the economy added 253,000 jobs last month.

"The employment market is showing clear resilience despite the drastic increase to U.S. interest rates over the last year and this resilience is going to afford Fed policymakers patie

Gold price to keep trading at historically high levels as markets monitor debt ceiling debate and credit conditions – analysts

Concerns about credit conditions and the debt ceiling debate will keep gold prices at historically elevated levels for the next few months, according to analysts.

The gold market retreated Friday as the banking fears subsided and the U.S. April employment report came in better than expected.

The U.S. unemployment rate fell back to a 53-year low of 3.4%, while the economy added 253,000 jobs last month.

"The employment market is showing clear resilience despite the drastic increase to U.S. interest rates over the last year and this resilience is going to afford Fed policymakers patience to ultimately continue to watch economic data before making any decisions over the narrative on the future monetary policy outlook," said CompareBroker.io chief analyst Jameel Ahmad.

June Comex gold futures were last at $2,024.30 an ounce, down 1.3% on the day. This came after Comex prices tested record highs of $2,085.40 earlier in the week.

"Banking worries seem to have disappeared today. But that is a story that is not going away any time soon," OANDA senior market analyst Edward Moya told Kitco News. "Overall, risks are to still elevated, credit conditions will continue to tighten. And with U.S. President Joe Biden meeting for debt ceiling talks. The risks will return."

The gold market won't face any serious obstacles until the debt ceiling issue and the banking sector turmoil are resolved, said Capital Economics commodities economist Edward Gardner.

"Concern about banks and the U.S. debt ceiling will keep the gold price historically high in the next few months. However, once these worries fade, we think that longer-term headwinds will come into play," Gardner said Friday. "Our new indicator of financial stress in advanced economies indicates that the gold price is benefiting from safe-haven demand related to banking troubles."

Washington is currently at a stalemate on the U.S. debt ceiling increase, which increases the risk of a default by June 1.

RBC Wealth Management warned this week that this year's political and economic backdrop is "one of the most challenging."

The last time the debt ceiling really shook markets was in 2011, and there are some parallels to be drawn between then and now.

"In 2011, the U.S. reached its debt ceiling on 16th May and, after much political wrangling, passed legislation to raise it on 1st August. On that date, the gold price was up by 9% month on month, which was probably in part due to U.S. government finance concerns. These same concerns have, of course, recently resurfaced," Gardner.

These issues might plague markets for the next few months, which will keep gold around the $2,000 level, according to Capital Economics.

Capturing record highs again in the short term might be challenging, but gold will likely get there again, Moya said.

"Inflation will prove to be sticky, which will justify the Fed maintaining a higher for longer stance. But the outlook for gold is bullish. Do we recapture record high? There is a good case to be made that eventually, we will."

Gold's key support is currently at $1,990, and the first resistance could be at $2,040 an ounce.

"The Fed is done for now. June meeting is likely to be a pause. Gold's key drivers will be the debt ceiling, banking concerns, and recession risks," Moya said.

Next week's data

Wednesday: U.S. CPI

Thursday: Bank of England rate decision, U.S. jobless claims, U.S. PPI

Friday: Michigan consumer sentiment

By

Anna Golubova

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

Gold gains traction as Fed hints at a pause after raising rates ¼%

The Federal Reserve concluded this month's FOMC meeting and as expected the Fed raised its terminal rate by ¼%. This takes the Fed benchmark rate to between 5% and 5 ¼%. Most importantly, after 10 consecutive rate hikes the Fed signaled that they may finally enact a pause of further rate increases at the next FOMC meeting in June.

This would allow the Federal Reserve to assess the damage from recent bank failures, and gauge inflationary levels which will lag behind rate hikes by the Federal Reserve. A pause would also allow the Fed to wait for a resolution over the US debt ceiling dilemma.

The rate hikes enacted by the Federal Reserve have definitively taken inflation down, it has also caused tremendous fallout. Continued rate hikes not only would have a detrimental effect on the economy but it would also have less of an effect on reducing inflation. Inflation has hit an area in which many sectors remain persistent or sticky and as such continued rate hikes would not have the intended effect of reducing inflation but would have the unintended effect of causing more harm to the financial system.

Gold futures broke out of their defined trading range between $1980 and $2020 yesterday. On a technical basis, prices were stuck inside of an asymmetrical triangle with a descending upper resistance line and a flat bottom. Yesterday's strong upside move took current gold futures pricing well above the upper-level resistance line. This resistance line proved to be definitive support as gold traded to a low of $2016 today which is precisely above the former resistance line which I now believe will act as a technical level of support.

The chart above is a 240-minute Japanese candlestick chart of June gold futures. It clearly illustrates both the flat bottom that is defined by multiple occasions in which gold traded to $1980 but close well above it. It also illustrates that gold has traded with a series of lower highs up until yesterday's breakout which took gold above its former resistance level.

As of 4:50 PM EDT gold futures basis, the most active June contract is up $25.10 and fixed at $2048.50.

Concerns about the banking crisis and the debt-ceiling remain unanswered

Now that the Federal Reserve has concluded this month's FOMC meeting, market participants will focus intensely on two major events that could lead to tremendous economic upheaval. There continues to be angst about the political standoff between the Democratic and Republican legislators regarding raising the debt ceiling. The fact that the government will not be able to meet its obligations much sooner than anticipated earlier is troublesome. More importantly, the divide between the Democrats and Republicans has never been wider which will make it very difficult for a compromise to be reached. As I've said over the last two days, during other instances where the debt ceiling had to be raised legislators played “kick the can down the road" however in this instance with so little time left to resolve the issue it seems are “playing a game of chicken".

Lastly, the banking crisis continues to be extremely worrisome as the possibility of more banks becoming insolvent remains. Collectively, the debt crisis remaining unresolved and the potential for more banks to become insolvent will have an exceedingly detrimental effect on the economy. These factors will continue to be highly supportive of gold moving higher.

By

Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

Tim Moseley

Gold surges as concerns of banking crisis and the debt-ceiling crisis re-emerge

With the FOMC meeting to conclude tomorrow the Federal Reserve will most likely announce a ¼% rate hike and attention has shifted away from the Fed as market participants focus on other potential calamities within the financial markets.

Genuine angst regarding the debt ceiling and concern about the re-emergence of the banking crisis has weighed heavily on the minds of market participants. These concerns are so significant that for the first time, the CME's FedWatch tool is indicating that there is a 15% probability that the Federal Reserve will cut rates at the June FOMC meeting. The CME's FedWatch tool predicts that there is an 85% probability that the Fed will pause rate hikes in June. If so, this would be the first time the Federal Reserve has either not raised rates, or cut rates over the last 10 consecutive FOMC meetings.

Debt ceiling anxiety grows after U.S. Treasury Secretary Janet Yellen in a letter yesterday said, “After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government's obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time.”

This means that there is very little time left for a solution and compromise to be reached. Considering that the divide between the desires of the Republican Party and the Democratic Party are so diametrically different it is hard to fathom a compromise will be reached in such a short time.

More alarming is that there are very few days in which members of the House, and the Senate will all be available to meet with the president. Considering the compromise that must be made by both parties there is an extreme uncertainty that a solution can be reached promptly.

The implications of solving the debt ceiling crisis before the government is unable to meet its obligations are profound. The economic effect if the two sides cannot reach an agreement is an unprecedented event. The repercussions are at best an economic recession and according to Secretary Yellen would have profound implications in perpetuity.

Now that the government has less time than previously believed to raise or suspend the debt limit it increases the probability of an 11th-hour showdown. Historically legislators have played kick the can, but in this instance, they are playing chicken.

The net result of all of these events occurring at the same time led to in a tremendous upside surge in gold prices. Gold futures traded to a high today of $2026.40. As of 5:30 EST the most active June 2023 contract of gold is currently up over $25 and fixed at $2025.60. Gold broke out of a pattern called a “descending top and a flat bottom” as today's solid gains broke above the upper descending trendline.

By

Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

Tim Moseley

Mastercard launches Crypto Credential for a more secure, verified blockchain experience

  Mastercard has announced the launch of Crypto Credential in an effort to establish a set of common standards and infrastructure that will help attest trusted interactions among consumers and businesses using blockchain networks.

According to the announcement posted on Friday, Crypto Credential is being created to provide a way for trusted, compliant and verifiable interactions to take place on public blockchain networks in order to bring more legitimacy to the blockchain industry.

“With Mastercard Crypto Credential, we can help ensure that those interested in interacting across Web3 environments are meeting defined standards for the types of activities they’d like to pursue,” the press release said. “Mastercard Crypto Credential will not only define verification standards and levels, but also provide necessary enabling technology to help bring more use cases to life.”

One benefit of the new service is that it allows for the creation of easy-to-remember aliases to help consumers share wallet addresses with one another. This helps to improve the consumer experience and reduces the potential for errors.

Crypto Credential will also “bring richer information to blockchain transactions through metadata, helping to define attributes of a wallet to help ensure that transactions are completed as intended,” Mastercard said.

The service will utilize CipherTrace’s suite of services to verify addresses and support Travel Rule compliance for cross-border transactions. Mastercard has partnered with crypto wallet providers Bit2Me, Lirium, Mercado Bitcoin and Uphold to enable transfers between the U.S and Latin America and the Caribbean corridors.

The payments firm has also joined forces with ith public blockchain network organizations Aptos Labs, Ava Labs, Polygon and The Solana Foundation to help introduce the application to developers in their ecosystems. “Together, we’ll collaborate to enhance verification in NFTs, ticketing, enterprise and other payments solutions,” Mastercard said.

This new service is just the latest cryptocurrency-related endeavor to be announced by Mastercard as the firm has been one of the most active multinational financial service providers in the crypto space in recent years.

In October, the firm announced the launch of ‘Crypto Secure’, a new crypto service desk focused on helping banks identify and prevent fraud from occurring on crypto merchant platforms. Later that month, the company launched ‘Crypto Source’, a new program that enables financial institutions to begin offering secure crypto trading services to their customers.

In January, Mastercard partnered with Polygon to launch the Web3-based Mastercard Artist Accelerator program, which is designed to help up-and-coming artists get established and connect with fans in the Web3 arena.

By

Jordan Finneseth

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

Gold market is in 'buy the dip' mentality until Fed's messaging, analysts watching Powell's banking sector comments – analysts

Gold is stuck in a tight range, with the "buy the dip" mentality dominating the market. Investors are keenly watching the Federal Reserve's widely expected 25-basis-point rate hike next week. But if markets interpret the messaging as a "hawkish pause," gold's rally could re-start, according to analysts.

The gold market is looking to wrap up April with a slight gain of 0.7% after reaching a 13-month high of above $2,050 an ounce earlier in the month. At the time of writing, June Comex gold futures were trading up 0.13% on the day at $2,001.60 an ounce.

"Gold is going to remain a buy-the-dips market until we get a few things ironed out as far as the economy is concerned," Walsh Trading co-director Sean Lusk told Kitco News.

Gold's rally failed at an important level, which might mean there is still a deeper setback to come, Michael Boutros, senior technical strategist at Forex.com, told Kitco News.

"Gold reached the 2022 high-day close at $2,049 and then posted a reversal lower," Boutros said Friday. "The $1,966 is the line in the sand, and we tested it last week. If we fall below that, a deeper washout to $1,912-$1,919 is possible. I would love to see that hold."

The objective in May is to find that exhaustion low before the next leg up in the gold price rally, said Boutros.

The Fed meeting: 'The devil is in the detail'

Markets are currently pricing in an 83% chance of a 25-bps hike on Wednesday, according to the CME FedWatch Tool.

"From the Fed's standpoint, the devil is in the details. The 25 bps is heavily priced in," Boutros said. "Commentary will be key. The big thing to look for is if the Fed will start to mention the banking system and issues like the First Republic Bank troubles."

The banking sector turmoil is not over yet, Boutros warned. "The heavy emphasis will be on whether the Fed sees cracks or risk of contagion," he noted.

Media reports were circulating at the end of the week that the U.S. government was leading rescue talks for First Republic Bank.

Markets are still pricing in rate cuts later in the year, but the majority of analysts are having trouble reconciling the market's expectations versus the Fed's obligation to keep fighting the elevated inflation.

"Inflation won't be going away any time soon, which is why the Fed is not going to cut rates," Lusk said.

What the Fed can do is sit on its hands, which will be viewed by the gold market as the much-needed pause in its rate hike cycle.

"Gold positioning is at less than 50% of its peak, suggesting upside risk once the Fed signals the end of the current hiking cycle," said Suki Copper, precious metals analyst at Standard Chartered. "We expect a hawkish pause."

Many see the May hike as the last one in this tightening cycle, with Boutros stating that a June rate increase is likely off the table.

Gold's fundamentals are bullish: Analysts look for $2,100 on the upside

The gold sector is the safe place many choose to go into for cover amidst all the market uncertainty, said Lusk.

"There is the perfect storm to the upside for gold still. Some headwinds for the economy here are housing and growth. The stock market will have a lot of trouble navigating to where it was. A lot more flows will go into gold sooner rather than later. Gold is a great asset to park money and find some safe haven within the market. Dips will be bought here," he explained.

From a technical perspective, gold's first major support is at $1,950-40, and then $1,925, said Lusk.

On the upside, Lusk's targets are $2,060 and then $2,100, which will be 15% up on the year. "Above that, the $2,190 area is 20% on the year — that's my ultra-bullish upside target," he said.

Another event to watch next week is the U.S. employment report from April, with markets looking for job growth to slow to 178,000 positions added from March's 236,000. The unemployment rate is expected to tick up to 3.6%.

Other supportive gold drivers in the longer term are the debt-ceiling suspense and geopolitical tensions, analysts added. "Geopolitics is not at the forefront right now, but it will be an X-factor moving forward," Boutros said.

Data next week

Monday: U.S. ISM manufacturing PMI

Tuesday: U.S. factory orders, JOLTS job openings,

Wednesday: Fed meeting, Powell press conference, U.S. ISM services PMI, U.S. ADP nonfarm employment

Thursday: ECB meeting, U.S. jobless claims,

Friday: U.S. nonfarm payrolls

By

Anna Golubova

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

Gold a bit weaker following downbeat U.S. GDP data

Gold prices are modestly down in midday U.S. trading Thursday, in the aftermath of a major U.S. economic report that was weaker than expected and falls into the camp of those expecting a U.S. economic recession. Such a scenario would likely mean less consumer and commercial demand for metals. June gold was last down $3.40 at $1,992.80 and May silver was up $0.009 at $24.885.

First-quarter U.S. GDP growth came in lower than expected at up 1.1%, year on year, compared to expectations for a rise of 2.0%. The closely watched PCE price index of the GDP data came in hot at up 4.2%; it was expected to be up 3.7%, year-on-year, versus a rise of 3.9% in the fourth quarter. The hotter PCE number falls into the camp of the U.S. monetary policy hawks, who want the Federal Reserve to keep interest rates higher for longer, to choke off problematic inflation.

Global stock markets were mostly higher overnight. U.S. stock indexes are solidly higher at midday. Risk appetite is better Thursday, but by no means robust, following the big drop in share price of First Republic Bank earlier this week. Also, the specter of a U.S. economic recession is moving closer to the front burner of the marketplace. It could be that the growing U.S. government debt burden and congressional wrangling regarding what to do about it are also crimping investor enthusiasm. Reads a Wall Street Journal headline today: "Banking turmoil is tip of debt iceberg."

  Gold consolidates but remains on a 'golden cross path' higher – NDR's Tim Hayes

The key outside markets today see the U.S. dollar index firmer. Nymex crude oil prices are up and trading around $74.75 a barrel. The benchmark 10-year U.S. Treasury note yield is presently fetching around 3.5%.

Technically, June gold futures bulls have the firm overall near-term technical advantage. However, a six-week-old uptrend on the daily bar chart has stalled out. Bulls' next upside price objective is to produce a close above solid resistance at the April high of $2,063.40. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the April low of $1,965.90. First resistance is seen at this week's high of $2,020.20 and then at $2,028.00. First support is seen at last week's low of $1,980.90 and then at $1,965.90. Wyckoff's Market Rating: 7.0

]

May silver futures bulls have the overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at the April high of $26.235. The next downside price objective for the bears is closing prices below solid support at $23.00. First resistance is seen at this week's high of $25.435 and then at $25.71. Next support is seen at this week's low of $24.53 and then at $24.25. Wyckoff's Market Rating: 7.0.

May N.Y. copper closed up 115 points at 386.50 cents today. Prices closed nearer the session high and hit a nearly four-month low early on today. The copper bulls and bears are on a level overall near-term technical playing field. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 410.00 cents. The next downside price objective for the bears is closing prices below solid technical support at 360.00 cents. First resistance is seen at 390.00 cents and then at Tuesday's high of 397.00 cents. First support is seen at today's low of 380.50 cents and then at 377.50 cents. Wyckoff's Market Rating: 5.0.

By

Jim Wyckoff

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

Gold weaker as U.S. Treasury yields up-tick

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(Kitco News) – Gold prices are modestly down and silver near steady in midday U.S. dealings Wednesday. The precious metals markets are seeing buying interest limited by a rise in U.S. Treasury yields at mid-week. However, losses in metals are being limited by a weaker U.S. dollar index today. June gold was last down $7.20 at $1,997.30 and May silver was up $0.003 at $24.89.

Traders at mid-week are buzzing about First Republic Bank's quarterly earnings report on Tuesday that was worse than expected, including a huge outflow of deposits. Reports said the bank's conference call on its earnings was very brief, with no questions taken from reporters. That prompted a nearly 50% drop in the bank's share price Tuesday, including trading in the stock being halted for a while. Reports today said the U.S. government is not going to step in an assist the ailing bank.

Meantime, U.S. and/or global recession fears appear to be moving back toward the front burner of the marketplace. Diesel fuel prices in the U.S. have plunged in recent months and are about half of what they were one year ago. Such suggests a slowdown in the commercial transportation sector that could be a signal of a slowing U.S. economy. United Parcel Service (UPS) on Tuesday issued a downbeat corporate earnings report, saying “macro conditions” would likely continue to pressure its delivery volume. The metals markets appear to be taking a bearish lean from this situation, on notions of less consumer and commercial demand if the global economy weakens.

Global stock markets were mixed to weaker overnight. U.S. stock indexes are mixed at midday. Focus of stock traders this week is on the release of quarterly corporate earnings reports. So far, they have been mixed.

  QE isn't over and will drive gold to $3,000 and Bitcoin to $100,000 in the next decade – Crossborder Capital

In overnight news, Sweden's central bank raised its main interest rate by 0.5%, saying inflation is still far too high.

The key outside markets today see the U.S. dollar index lower. Nymex crude oil prices are weaker and trading around $76.75 a barrel. The benchmark 10-year U.S. Treasury note yield is presently fetching 3.695%.

Technically, June gold futures bulls still have the firm overall near-term technical advantage. However, a six-week-old uptrend on the daily bar chart has stalled out. Bulls' next upside price objective is to produce a close above solid resistance at the April high of $2,063.40. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the April low of $1,965.90. First resistance is seen at today's high of $2,020.20 and then at $2,028.00. First support is seen at last week's low of $1,980.90 and then at $1,965.90. Wyckoff's Market Rating: 7.0

May silver futures bulls have the overall near-term technical advantage. However, a six-week-old uptrend on the daily bar chart has been negated, which is one early clue that a market top is in place. Silver bulls' next upside price objective is closing prices above solid technical resistance at the April high of $26.235. The next downside price objective for the bears is closing prices below solid support at $23.00. First resistance is seen at this week's high of $25.435 and then at $25.71. Next support is seen at this week's low of $24.53 and then at $24.25. Wyckoff's Market Rating: 7.0.

May N.Y. copper closed up 105 points at 385.85 cents today. Prices closed nearer the session low today. The copper bulls and bears are on a level overall near-term technical playing field. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 410.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the March low of 382.20 cents. First resistance is seen at 390.00 cents and then at Tuesday's high of 397.00 cents. First support is seen at this week's low of 383.00 cents and then at 382.20 cents. Wyckoff's Market Rating: 5.0.

By

Jim Wyckoff

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

Info from Thursday’s GDP and Friday’s PCE report will guide investors

This week will contain two exceedingly important government reports on the US economy. These two reports will be exceedingly important in guiding the final decision of the Federal Reserve at the FOMC meeting next week.

Beginning on Thursday the Bureau of Economic Analysis (BEA) will release the Gross Domestic Product first quarter report. An average of the current forecasts is predicting that the first quarter GDP for 2023 will come in at 1.8%. If correct, this would indicate that the economy continues to contract from the 2.6% GDP that was reported in the fourth quarter of last year.

According to Saxo.com, “The advance reading of the US real GDP growth, scheduled to release on Thursday, is expected, according to Bloomberg’s survey of economists, to slow to 2% Q/Q annualized in Q1, down from 2.6% in Q4 last year. Despite inventory drawdown potentially dragging GDP growth, personal consumption is expected to come in strong at 4% Q/Q annualized and be the key driving force to sustain GDP growth in Q1.”

This will be followed by Friday’s Personal Consumption Expenditures (PCE) index, the preferred measure of inflation and wage growth used by the Federal Reserve. Economists polled by Bloomberg are predicting a moderate forecast for the core PCE to show an increase of inflation by 0.3% MoM and 4.5% YoY.

According to the same report by Saxo, “As rent-related components have a smaller weight in the core PCE measures than in the core CPI calculation, the core PCE may not benefit as much as the CPI counterpart from the recent weaknesses in rents. Investors will monitor closely the core service excluding housing sub-index in the PCE report to gauge the underlying consumer inflation trend in the U.S. Meanwhile, the headline PCE deflator growth is expected to slow to 0.1% M/M and 4.1% Y/Y in March from 0.3% M/M and 5.0% Y/Y in February.”

These upcoming reports and their forecasts have led investors to devalue the US dollar which in turn has added strength to gold prices. However, gold futures remain just under $2000 per ounce at the time of this writing.

As of 5:00 PM EST, gold futures basis most active June contract is up $8.10 or 0.41% and fixed at $1998.60. Gains witnessed in gold futures today have an exacting negative correlation to dollar weakness. Currently, the dollar is down 0.45% with the dollar index currently fixed at 101.095. Gold futures have traded to a higher low and a lower high than Friday’s strong price decline. On Friday of last week, gold futures broke below a critical technical and psychological price level of $2000 per ounce. As gold held above $2000 speculators and traders believed there was a strong possibility that gold would challenge the record of $2088 per ounce. Reciprocally, moves below that key technical level garnered speculation of gold prices dropping.

According to the CME’s FedWatch tool, there is almost a certainty (91.4%) that the Federal Reserve will end next week’s meeting with the announcement of a ¼% rate hike. Also, there is a 67.9% probability that the Fed’s terminal target rate will remain between 5% and 5 ¼% with the Federal Reserve not raising rates at the June 2023 FOMC meeting.

By

Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

Tim Moseley

Gold price plunges $30, but analysts focus on Fed pause after May rate hike

Gold tumbled $30 on the day and dropped below the critical $2,000 an ounce level, but analysts said there is enough buying interest to boost prices back up.

Significant volatility in the U.S. dollar and Treasury yields markets took a toll on gold Friday, with June Comex gold futures last trading at $1,989.10, down 1.49% on the day.

The Fed's blackout period also begins this Saturday, meaning Federal Reserve officials won't speak publicly between then and the May 3 FOMC meeting. Markets are currently pricing in an 88% chance of a 25-basis-point hike, according to the CME FedWatch Tool.

"It is expected the Fed will raise rates a quarter point next month. And there is a great deal of uncertainty with gold above or below $2,000. I remain bullish at these levels. We will get to a point where the Fed has to pause and make that pivot. And maybe resort to cuts later this year," RJO Futures senior market strategist Frank Cholly told Kitco News. "That will support gold, which will trade at all-time highs between now and the end of the year."

Next week, markets will zero in on fresh macro data, including the U.S. Q1 GDP and PCE price index numbers.

"The upcoming U.S. economic data, especially the GDP data and the price deflator for consumer expenditures, being the Fed's preferred inflation measure, could trigger some price movement," said Commerzbank analyst Carsten Fritsch.

On Friday, markets already digested stronger-than-expected U.S. manufacturing and service sector data, which weighed on gold. The S&P Global Flash U.S. manufacturing PMI advanced to 50.4 in April from March's reading of 49.2. This marked the first move into expansion territory since September.

"Markets were looking for a decline. Also, people thought that the U.S. dollar would be dropping and positioned short. And with economic data moving higher, we are likely seeing some short-covering," TD Securities' global head of commodity strategy Bart Melek told Kitco News. "The Fed is more likely than not to keep that hawkish stance alive. For May, it is on track to do another 25bps hike, and there is a risk of one increase more after that."

Price levels

A decent support level for gold is at around $1,962, but prices can drop below that, Melek noted, adding that it will depend on the economic data and what the yields are doing. “Technically, we see significant support at just above $1,960/oz. However, we see the yellow metal trend at $2,100/oz in late H2-2023,” he said.

Cholly pointed to $1,975-80 as likely to hold next week. He added that "markets tend to overreach in both directions. The $1,975 level is going to be relatively good support. I don't see it getting below $1,965." On the upside, the first hurdle will be $2,025 and then $2,050-60.

After the Fed May rate hike

The May hike looks increasingly likely to be the last interest rate increase, according to Capital Economics deputy chief U.S. economist Andrew Hunter.

"We are increasingly confident that the May rate hike will prove to be the last of this cycle … [And] our expectation that rates will be cut again late this year. That's based on our long-standing view that the economy is headed for recession, eventually dragging inflation down more quickly than the Fed is allowing for."

Gold's long-term bullish outlook is still very much intact. And as soon as markets settle on when the Fed pauses, gold will rally.

"Right now, there is a risk that the Fed overdoes it. When the economy slows, it will be fast. For gold, it is important that a pivot is happening, and there is a significant risk that U.S. central bank won't strictly adhere to 2% inflation," said Melek.

And that means that the Fed will likely ignore elevated inflation and keep adding accommodation, which will sustain gold's bullish trend. "This would imply lower real rates than previous cycles," Melek pointed out. "Central banks and consumers are buying gold as a hedge to preserve their purchasing power."

Investors are also once again realizing that there is more than one reason to own gold, added Cholly.

"The safe haven trade is going to be a factor. And it is not just a hedge against the U.S. dollar and rates. But geopolitical tensions are rising again, especially between U.S. and China," he said. "People are starting to feel like there is enough uncertainty. And we are about to enter a recession. Gold prices will remain strong."

Next week's data

Tuesday: CB consumer confidence, U.S. new home sales

Wednesday: U.S. durable goods orders

Thursday: U.S. GDP Q1, jobless claims, U.S. pending home sales,

Friday: U.S. PCE price index

By

Anna Golubova

For Kitco News

Time to Buy Gold and Silver

Tim Moseley