Good closed on a straight negative bracket for the third week. It gave up some gains on Friday and was on course for a third straight weekly loss on the likelihood of a last-minute debt ceiling deal and as a hotter-than-expected U.S. inflation gauge raised bets for rates to stay higher for longer.
Gold prices hovered around two-month lows on Friday and were set for steep weekly losses as concerns over raising the U.S. debt ceiling and expectations of high-interest rates saw investors pivot into the dollar.
The losses in gold saw the yellow metal mark a sharp reversal from record highs hit earlier in May, as easing concerns over an immediate banking crisis sapped the yellow metal of its safe-haven appeal.
Signs of strength in the labor market also posited a hawkish outlook for U.S. rates, as weekly jobless claims continued to rise.
US initial jobless claims rose 4k to 229k in the week ending May 20, below the expectation of 253k. Four-week moving average of initial claims was unchanged at 232k.
Continuing claims dropped -5k to 1794k in the week ending May 13. Four-week moving average of continuing claims dropped -12k to 1800k.
High interest rates pushed up the opportunity cost of holding non-yielding assets such as metals and reduced their appeal.
Just the month of May saw significant up-and-down moves in gold. From crossing $2044 to dropping to $1950 almost in the same month.
Gold was definitely up to some mischief, owing to so many global factors.
As of today, it’s very difficult to predict whether will gold continue to be range-bound in the month of June or will it see significant highs from here.
The focus remains on one the most important financial events of the year – negotiations among U.S. lawmakers over raising the debt ceiling, although both Democrats and Republican negotiators flagged little progress towards reaching a deal.
Hawkish signals from the Federal Reserve kept the dollar upbeat while weighing on gold as policymakers signaled that U.S. interest rates will remain higher for longer to combat sticky inflation
Fears of a global economic slowdown, especially in the face of a U.S. default and a German recession, also did little to spruce up safe-haven demand for gold
Gold has long been an asset that investors flee to in times of financial uncertainty, such as periods of hyperinflation or when distrust in the financial system is high and other fears stalk the markets. It is effectively a panic asset, seen as a port in a storm at times of market stress.
Owing to the weakness of the dollar, the strength of the banking system, interest rate hikes, Central Bank buying, US debt ceiling – gold seems to be having extended support in the long term.
Though it has dropped more than 50 dollars from its high in May, short-term investors still believe that gold will rise up and manage to stay there for quite some time.
One reason why Gold is suitable as a safe haven is the fact that it does not yield any interest itself and thus suffers no disadvantage in an environment in which monetary policy will in all likelihood be loosened and yields will fall accordingly. This gives Gold an advantage over other conventional safe havens such as the US Dollar, the Swiss Franc, and the Japanese Yen – especially just now.