Gold lifts on debt ceiling uncertainty

Gold lifts on debt ceiling uncertainty

Gold lifts Monday on rising debt ceiling uncertainty but still pressured by comments from Federal Reserve officials indicating that the central bank may not be done with its series of interest rate hikes.

A standoff over the U.S. debt ceiling and concern about an economic slowdown after Friday’s release of data showing slumping consumer sentiment have attracted haven investors to the precious metal. But Chicago Fed President Austan Goolsbee told PBS that inflation is still too high shortly after Fed Governor Michelle Bowman said the central bank will likely need to raise rates further if inflation doesn’t cool.

Higher interest rates are typically bearish for gold, because they make the yellow metal less attractive as an alternate investment, but a pause or an end to the rate hikes would be bullish.

June gold futures fell 0.3% last week to settle at $2,019.80 an ounce on Comex, after the front-month contract decreased 70 cents Friday. Bullion increased 0.6% in April after gaining 8.1% in March. The metal fell $2.40 in 2022. The current June contract is flat at $2019.40 an ounce and the DG spot price is $2017.00.

U.S. consumer sentiment fell to a six-month low in May, data released Friday showed. The report added to pessimism forming about the state of the economy. The preliminary reading of the University of Michigan index dropped to 57.7 this month, the lowest reading since November and down from 63.5 in April. 

U.S. President Joe Biden and congressional leaders are expected to meet on the debt ceiling Tuesday, after reports staff members had “productive” talks over the weekend. Biden warned last week that if lawmakers don’t move quickly to raise the country’s $31.4 trillion debt ceiling, it could throw the country into a recession and cost thousands of jobs. 

About 78.8% of investors tracked by the CME FedWatch Tool are betting that the Fed will keep interest rates unchanged at the next meeting in June, while 21.2% expect another 25 basis point rate hike. The Fed raised rates by another 25 basis points earlier this month. 

The Fed has raised rates by 25 basis points three times this year following rate hikes of 50 basis points in December and 75 basis points each in June, July, September and November 2022. The federal funds rate is currently at 5.00% to 5.25%. 

Inflation slowed to the lowest rate in two years in consumer price index and producer price index data released last week, but it’s still higher than the Fed’s target. Fed policymakers have said that they consider labor market conditions and inflation data when making monetary policy decisions. 

July silver futures dropped 6.9% last week to settle at $24.15 an ounce on Comex after the front-month contract fell 1.1% Friday. Silver gained 4.4% in April after increasing 15% in March. It rose 3% in 2022. The July contract is currently up $0.066 (+0.27%) an ounce to $24.220 and the DG spot price is $24.18.

Spot palladium increased 1% last week to $1,540.50 an ounce, though it dropped 2.7% Friday.  Palladium rose 2% last month after rising 3.7% in March. Palladium lost 5.7% in 2022. Currently, the DG spot price is up $13.70 an ounce to $1554.00.

Spot platinum lost 0.3% last week to $1,064.20 an ounce after retreating 3.5% Friday. Platinum added 8.5% in April after increasing 3.7% in March. Platinum surged 10% in 2022. The current DG spot price is down $2.00 to $1065.40.

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