The beginning of the week has been rather subdued due to public holidays observed in both the UK and the US.
Gold (XAU/USD), following last week's downward pressure due to increased optimism surrounding US Debt Ceiling negotiations, which has provided significant support to the US dollar, is currently trading in the range of $1950 to $1940. The prevailing market sentiment indicates the possibility of another interest rate hike in June, which may further impact gold prices negatively.
A recent agreement between US President Joe Biden and House Speaker Kevin McCarthy has been reached regarding the Debt ceiling. The deal suspends the $31.4 trillion debt ceiling until January 1, 2025. However, for the deal to take effect, it requires approval from Congress, and there is a deadline of June 5 to prevent the country from facing a shortage of funds to meet its financial obligations. It should be noted that there may still be obstacles in Congress, with certain Republican lawmakers potentially attempting to impede the agreement.
Although the debt ceiling may be temporarily addressed, it does not tackle the underlying long-term issue. The US debt is projected to increase to $36 trillion by January 2025, potentially rising to $50 trillion by 2050. This prospect could have a positive impact on gold prices in the future.
Investor attention will also be focused on the upcoming Federal Reserve rate decision and the potential for the Fed to maintain a tighter monetary policy. An important event to watch out for this coming Friday is the release of the nonfarm payrolls report, as it could significantly influence the June Federal Open Market Committee (FOMC) decision.
From a technical perspective, gold is currently teetering on the edge. If the price breaks below the $1935 level, it could potentially trigger a deeper pullback circa $1900. However, overall market sentiment remains bullish for gold.
