“Gold Prices Fall for Third Consecutive Week amid US Interest Rate and Government Debt Crisis”

Weekly Review

Jakarta, CNBC Indonesia – The price of gold fell this week. In the last trade this week, Friday (26/5/2023) the price of gold on the spot market closed at US$ 1,946.33 per troy ounce. The price did strengthen 0.31%.

This reinforcement at least gives fresh air after gold slumped in the previous two trading days. However, overall, gold fell 1.52% on the week. That is, gold has fallen for three consecutive weeks.

The price of gold is currently also at its lowest level in a month. The precious metal has not been at the level of US $ 19.40 since March 21, 2023.

There are two factors why gold has slumped this week, where the sources of the problems all come from the United States (US).

These two factors are market expectations regarding interest rate policy and the US government debt crisis.

Gold had fallen badly in the middle of this week after the Federal Open Market Committee (FOMC) minutes came out.

The minutes have yet to show any signal of a policy pivot. Some officials of the United States (US) central bank, The Federal Reserve (The Fed), even still want to increase interest rates.

This means that the hopes of gold market players to see the Fed soften in June have vanished.

The market is now betting 50-50% if the Fed will raise interest rates by 25 bps in early June. Policy cuts are likely to occur in September 2023.
This hope was diminished after the US citizen spending data came out on Friday. IUS personal consumption expenditure (PCE) index rose 4.4% (year on year/yoy) in April 2023, up from 4.2% (yoy) in March.

This data reflects that inflation will still find it difficult to fall sharply in the future as expected by the Fed. In fact, previously the market was very confident that the Fed would begin its policy pivot in June.

The policy of the Fed which is still “fierce” of course has a negative impact on gold.

When interest rates remain high, the US dollar is getting stronger and yield US government debt rose. This condition makes gold expensive to buy so it is not attractive.

Gold also does not offer yield so unattractive. Yield US government bonds closed at 3.82% or the highest position since March 9, 2023.

The US personal consumption expenditure index (PCE) rose 4.4% (year on year/yoy) in April 2023, jumping from 4.2% (yoy) in March.

This data reflects that inflation will still find it difficult to fall sharply in the future as expected by the Fed.

Another factor that makes gold slump is the US government debt crisis.

Unlike the Fed, which immediately gave a negative impact, the debt crisis has a double impact on gold.

Gold is a safe haven to look for during a crisis or increasing market anxiety. Gold rose as the US debt crisis hit a dead end but it weakened after signals the crisis could be resolved.

US President Joe Biden and Republican Speaker of the House Kevin McCarthy are close to agreeing to cut spending and raise the government’s debt limit from $31.4 trillion, with little time to spare to stave off default risks.

However, a number of parties believe that if the crisis is not over then the threat is still there. It was this factor that made gold slightly improve on Friday.

“It seems that the debt agreement is still difficult to reach on June 1. This makes gold go up,” said independent analyst Tai Wong, quoted from Reuters.

OANDA analyst, Edward Moya, cautioned that gold prices could fall again if the US ceiling debt crisis can be resolved. This is because the appeal of gold as a safe asset and risk hedge is fading.

“If the US debt agreement is reached, the biggest risk will disappear. Gold has the potential to weaken,” said Moya, quoted from Reuters.

CNBC INDONESIA RESEARCH

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