The US debt crisis seems to have dawned. U.S. President Joe Biden and Republican House Speaker McCarthy are close to reaching a deal, according to people familiar with the matter.
It is reported that lawmakers are likely to quickly finalize the upper limit figures for discretionary spending, including military spending, but the details of categories such as housing and education will be postponed until the next few months to be finalized slowly through the normal appropriation process. In the end, negotiators will craft a stripped-down agreement with just a few key figures.
McCarthy noted that his team is working around the clock and some progress has been made in the negotiations. Biden emphasized on Thursday that the United States will not default on its debt.
The turning point of the debt impasse made the market start to pay attention to the price of gold. On Thursday, COMEX June gold futures closed down 1.06% at US$1,943.70 an ounce, and was last reported at around US$1,950 during the Asian session of the day.
Clifford Bennett, chief economist at ACY Securities, said that the market generally expects that the debt crisis will be resolved and that the Fed will still tighten monetary policy in general, which will put some downward pressure on gold prices.
Since the beginning of this week, the price of gold has fallen by 1.5%. Markets are now on renewed optimism over a resolution to debt-ceiling talks, reducing safe-haven demand for gold, while strong U.S. economic data stoked bets on another rate hike by the Federal Reserve.
Edward Moya, senior market analyst at OANDA, believes that this is a double blow for gold. If debt negotiations reach an agreement this weekend, the biggest risk will be ruled out, and gold prices are likely to usher in further declines.
Seeing the world through dollars
On Thursday, the dollar index rose to 104.12, its highest level since March 17. Independent analyst Ross Norman said that gold actually moves its price through the movement of the dollar.
Gold has actually fallen for three consecutive weeks, which is closely related to the recent economic data released by the United States.
The latest data on Thursday showed that the number of Americans filing new claims for jobless benefits rose modestly from low levels, indicating that the labor market remains healthy. In addition, U.S. GDP growth in the last quarter was also revised upwards. This fully demonstrates the current resilience of the U.S. economy, and also adds to the market debate on raising interest rates again.
According to the CME FedWatch tool, the market is now pricing in a 50 percent chance of a 25-basis-point rate hike in June, and in a rate-hiking environment, gold tends to be tasteless for investors.
However, Ajay Kedia, director of Mumbai-based Kedia Commodities, believes gold prices could still reach $1,980 or near $2,000 in June, supported by physical demand in major markets such as India and China, as well as overall economic uncertainty.
