Gold rises on debt ceiling ahead of Fed minutes

Gold rises on debt ceiling ahead of Fed minutes

Gold rises early Wednesday, buoyed by haven investors on debt ceiling concerns and ahead of today’s Fed minutes.

With just days to go before the June 1 estimate of when the government is likely to run out of cash and the U.S. could default on $31.4 trillion in debt, negotiators are in a standoff about whether to roll back federal government spending. They’re expected to reconvene Wednesday. 

Investors are also paying close attention to signals of the Federal Reserve’s next moves on monetary policy at its meeting next month. The minutes of the last Fed policy meeting are due out Wednesday at 2pm Eastern.

August gold futures fell 0.2% Tuesday to settle at $1,992.80 an ounce on Comex. The front-month contract dropped 0.4% in the first two days of the week. Bullion is down 0.3% this month after increasing 0.6% in April and 8.1% in March. The metal fell $2.40 in 2022. The August contract is currently up $3.80 (+0.19%) an ounce to $1996.60 and the DG spot price is $1978.10

Republicans led by House Speaker Kevin McCarthy are pushing in the debt ceiling talks for cutbacks in federal spending and wouldn’t agree to freeze spending instead, the White House’s latest offer. 

Investors are also awaiting a series of key economic releases, particularly the latest data on inflation, the economy and the labor market for signs on whether the Fed will raise interest rates again in June or pause its series of rate hikes to curb inflation.

First quarter U.S. GDP data is due out Thursday, which will provide indications on the state of the economy. Weekly initial jobless claims come out the same day.

Then the Fed’s favorite inflation measure, the personal consumption expenditures price index, comes out Friday with April data. Consumer sentiment data for May is also scheduled for release Friday.  

About 64.9% 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 35.1% expect another 25 basis point rate hike. 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.

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%. 

July silver futures dropped 1% Tuesday to settle at $23.62 an ounce on Comex. The front-month contract retreated 1.8% in the first two days of the week. Silver is down 6.4% this month after gaining 4.4% in April and 15% in March. It rose 3% in 2022. The July contract is currently down $0.089 (-0.38%) an ounce to $23.535 and the DG spot price is $23.45.

Spot palladium decreased 2.7% Tuesday to $1,471.50 an ounce and is down 4.5% this week. Palladium is down 3.4% this month after rising 2% in April and 3.7% in March. Palladium lost 5.7% in 2022. Currently, the DG spot price is down $33.70 an ounce to $1438.00.

Spot platinum decreased 1.9% Tuesday to $1,058.30 an ounce and is down 1.7% this week. Platinum is down 2.5% in May after adding 8.5% in April and 3.7% in March. Platinum surged 10% in 2022. The DG spot price is currently down $10.10 an ounce to $1049.50.

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