Soon gold will fall below 1945, or even 1900
Spot gold traded in a tight range around $1,973.50 an ounce in Asian hours on Wednesday as risk aversion grew and Treasury yields edged down from more than two-month highs on news that a new round of U.S. debt ceiling talks had ended without much progress. However, upbeat U.S. housing and services data and an extended rally in the dollar index limited gold's recovery.
Investors now await the release of minutes from the Federal Open Market Committee's May 2-3 meeting. As a rule of thumb, the minutes are likely to be less dovish than expected, which could keep gold under pressure after the Fed's dovish decision on May 3.
Investors will also need to keep an eye on a speech by Federal Reserve Governor Paul Waller for further news on the U.S. debt ceiling negotiations.
Republicans in the United States say there has been little progress in debt ceiling talks with the White House
Republicans in the U.S. House of Representatives said on Tuesday they had made little progress in talks with the White House to raise the government's $31.4 trillion borrowing limit and the United States was at risk of default in as soon as nine days.
The top negotiator for Republican House Speaker Kevin McCarthy said aides to President Joe Biden and McCarthy would meet again on Tuesday. The two parties remain deeply divided over how to rein in the federal deficit, with Democrats arguing that wealthy Americans and corporations should pay more in taxes and Republicans wanting to cut spending.
The Treasury Department has warned that the federal government may no longer have enough money to pay all its bills on June 1, which would lead to a default that would hit the U.S. economy and raise borrowing costs.
Republican negotiator Garret Graves said he saw little progress. "I don't think things are going well, and their refusal to really change the trajectory, to really cut spending, is a red line."
Mr. Biden and Mr. McCarthy spoke about the need to find a bipartisan compromise in a Monday night meeting on the debt ceiling, but they stuck to their policies, exposing the partisan divide.
The lack of clear progress continued to weigh on Wall Street, with the S&P 500 down more than 1 percent on Tuesday and global markets on edge, lending safe-haven support to gold.
With the risk of default looming, the US Treasury has asked federal agencies to communicate more about how they will receive payments in the coming days
The Treasury Department said Tuesday it is asking other federal agencies to provide clearer information and better communication about their expected payments in coming days to better predict when the government will run out of cash if the federal borrowing limit isn't raised.
A Treasury spokesman said the department was not asking agencies to defer any payments due, but rather to improve communication about future collections and payments.
"In order to make accurate projections around the debt ceiling, Treasury must have up-to-date information on the amount and timing of agency payments," the spokesman said in an emailed statement. "As with previous debt ceiling responses, Treasury will continue to communicate regularly with all levels of the federal government about its planned expenditures."
The Treasury is scrambling for ways to conserve the government's dwindling cash resources and could default as early as June 1, while the White House and congressional Republicans remain locked in tense negotiations over raising the $31.4 trillion borrowing limit.
The Treasury has asked agencies if they can defer some payments that are coming due, two people familiar with the matter said.
According to a memo purportedly sent by the Treasury Department to federal agencies, the department requires agencies to notify it at least two days in advance of all collections and payments of $50 million to $500 million, and five days in advance of all payments of more than $500 million.
The head of the IMF, Anastasia Georgieva, wants to see the US debt ceiling resolved "at the eleventh hour"
International Monetary Fund chief Anastasia Georgieva said on Tuesday she hoped the world economy would not have to wait until the last minute to see the US debt ceiling resolved.
The White House and Republican negotiators in Congress are seeking to break a months-long stalemate over raising the government's $31.4 trillion borrowing limit, with the United States facing the risk of defaulting on its debt in as little as nine days.
Georgieva told a news conference in London that a US default, which would hurt the US economy and the global economy, was a strong incentive for negotiators to reach a deal.
"In the past, debt ceiling negotiations in the US have always been quite tense, but a solution has always been found," she said. "Let's see to what extent this will go down to the wire. Hopefully we won't have to wait that long."
Her comments came after Ms Georgieva presented the IMF's annual review of the UK economy in London. It now expects the UK economy to avoid recession but continue to face high inflation and low growth in the short term.
The yield on the 10-year Treasury fell from a two-month high as debt ceiling talks continued
The yield on the 10-year U.S. Treasury note retreated from a two-month high hit earlier on Tuesday as traders focused on when Congress would reach a deal to raise the debt limit and the Treasury's auction of 2-year notes drew strong demand.
At the same time, yields on one-month Treasury bills, shunned for fear of payments coming due when the Treasury is most likely to run out of money, also fell from record highs.
Optimism that U.S. lawmakers were close to a deal to raise the debt ceiling helped push longer-dated Treasury yields higher earlier on Tuesday, but they fell back as negotiators still appeared to face wide differences.
U.S. President Joe Biden and congressional Republicans have ended another round of debt ceiling talks with little progress as the deadline to raise the government's $31.4 trillion borrowing limit nears.
Thierry Wizman, global currency and rates strategist at Macquarie in New York, said investors were focused on "the prospect of Treasury, Congress and the White House failing to reach an agreement by the deadline."
The yield on the 10-year Treasury note was down two basis points late Tuesday at 3.696 percent, after earlier reaching 3.761 percent, its highest since March 13.
The yield on one-month U.S. Treasury bills fell back to 5.594% Tuesday after reaching a record high of 5.888%.
Hawkish comments from Fed officials this week helped push yields higher, leading traders to increase bets on a June rate hike and lower their expectations for a rate cut later this year.
Fed funds futures traders now see a 28% chance of another quarter-point hike in June.
The Treasury sold $42 billion in two-year notes on Tuesday, drawing strong demand at a yield of 4.30 percent and a multiple of 2.90, the highest since January.
Euro zone factories are in trouble, with the manufacturing PMI contracting to a three-year low
Manufacturing activity in the euro zone shrank in May at its fastest pace since the coronavirus pandemic shuttered factories three years ago, threatening to dent the momentum of the services-driven economy. This also provided safe-haven support for gold prices.
According to the latest data from S&P Global, the preliminary euro zone manufacturing PMI unexpectedly fell to 44.6 in May, below market expectations of 46, further below the 50-point line that indicates contraction and to a 36-month low.
The preliminary euro zone services PMI also fell in May, although a reading of 55.9 still pointed to strong growth and was above market expectations of 55.6.
The S&P report adds to growing evidence that manufacturing woes in Germany, Europe's largest economy, are increasingly weighing on the region. That chimed with a survey by the German Chambers of Commerce and Industry (DIHK) published on Monday, which pointed to zero growth this year as companies saw no sign of an economic pick-up.
Sales of new U.S. homes rose to their highest level in about 13 months in April
Sales of new U.S. homes jumped to their highest level in 13 months in April, helped by a persistent shortage of previously owned homes on the market and a sharp drop in new home prices from last year's highs.
Tuesday's report from the Commerce Department follows data last week showing a sharp rise in permits for single-family homes. Homebuilder sentiment rose to its highest level in 10 months in May, with no sign yet that the recent tightening of credit conditions is weighing on the housing market, which has been hardest hit by the Fed's fastest rate-raising cycle since the 1980s.
"There is growing evidence that the housing market may have largely adjusted to higher mortgage rates, but the pullback in median prices is consistent with the assumption that builders may be targeting new homes to first-time buyers," said Conrad DeQuadros, senior economic adviser at Brean Capital.
New home sales rose 4.1 percent in April to a seasonally adjusted annual rate of 683,000 units, the highest level since March 2022.
The government revised sales, inventory and monthly supply data going back to January 2018.
New home sales are counted when contracts are signed, making them a leading indicator of the housing market. However, the data fluctuates from month to month.
Economists had forecast new home sales, which make up a small portion of U.S. home sales, falling to 665,000 units in April. Sales rebounded 11.8 per cent in April from a year earlier
The median price of a new home was $420,800, down 8.2 percent from a year ago. Sales were concentrated in the $300,000 to $499,000 price range.
Existing home inventory is still 44 per cent below pre-pandemic levels, according to the National Association of Realtors. The association also reported last week that home prices were rising in about half of the country, with multiple offers and many homes selling for more than their listing price.
The supply shortage has prompted buyers to aggressively take advantage of falling mortgage rates, allowing builders to aggressively build homes even as the overall housing market remains depressed.
There were 433,000 new homes on the market at the end of April, compared with 432,000 in March. At April's sales pace, it would take 7.6 months to sell off the existing supply of homes on the market, compared with 7.9 months in March.
The report, along with previous data showing a resilient labor market, strong retail sales and a rebound in factory production, suggested the economy regained momentum early in the second quarter.
The preliminary composite PMI output index rose to a 13-month high in May
Us business activity rose in May to a 13-month high, driven by strong growth in the services sector in the latest signs that the economy regained momentum early in the second quarter despite rising risks of recession.
S&p Global said on Tuesday that its preliminary US composite PMI output index, which tracks manufacturing and services, rose to 54.5 this month, the highest level since April 2022, after a final reading of 53.4 in April. It was the fourth month in a row that the PMI remained above 50, indicating growth in the private sector.
A gauge of new orders received by private firms jumped to 54.3 this month from 51.9 in April, the highest reading since May last year, led by the services sector, the survey showed, keeping services inflation high. Price pressures on factories have eased. A gauge of input prices paid by firms slipped to 58.5 from 61.2 in April, the survey showed.
Chris Williamson, chief business economist at S&P Global Market Intelligence: "During the pandemic, prices soared in the manufacturing sector due to high demand and deteriorating supply, and now it is the turn of the service sector to raise prices as demand picks up and cannot cope with the influx of orders due to insufficient capacity."
Businesses also boosted their payrolls, and companies reported that open positions were easier to fill.
The purchasing managers' index for the services sector rose to 55.1 from 53.6 in April, also a 13-month high, the survey showed. Economists polled by Reuters had forecast the services PMI falling to 52.6.
However, the manufacturing PMI fell to 48.5 from 50.2 in April. Economists had forecast a reading of 50. New orders fell, having risen in April for the first time in six months, and manufacturers reported that customers were focused on getting rid of current inventories. However, manufacturers are optimistic about business conditions in the year ahead.
A gauge of what factories pay for inputs fell below 50 for the first time in three years.
The dollar hit a two-month high as the lack of progress on the US debt ceiling kept traders nervous
The dollar index was also supported by risk aversion on Tuesday, hitting a two-month high against a basket of currencies as the lack of progress in talks to raise the U.S. debt ceiling hit investors' risk appetite.
"I think the dollar got a little bit of a boost today and stocks are down, mostly due to the lack of progress on the debt ceiling," said John Doyle, vice president of trading at Monex USA.
Doyle said that while most market participants expect a deal to eventually be reached, the delay is making traders nervous.
Meanwhile, the dollar was also supported by better than expected economic data and hawkish comments from regional Fed presidents, including Bullard and Kashkari, which raised the likelihood of further rate hikes.
The dollar index hit 103.65 on Tuesday, its highest level since March 20, and was at 103.53 late in New York.
Edward Moya, senior market analyst at OANDA, said: "The focus is slowly returning to inflation and all these hawkish statements we've been hearing from Fed officials. "What we are seeing is a market that may be positioning itself to bet on a stronger dollar later as Fed rate cuts are pushed back and the market is betting that rates will stay higher for longer."
The hawkish tone from Fed officials this week follows comments by Chairman Jerome Powell on Friday that were seen as dovish.
Mr Powell said on Friday that it was still unclear whether further rate hikes would be needed, with Fed officials balancing uncertainty about the impact of higher rates against the recent tightening of credit by banks with inflation proving elusive.
Moya noted that the market will be watching Wednesday's release of the minutes of the Fed's May meeting for any further signs of whether rate hikes may be on hold next month.
Overall, while default fears are providing some safe-haven support for gold, they are also supporting the dollar, which has been on a very strong run. Treasury yields, despite Tuesday's spike, are still near two-month highs. Relatively strong U.S. economic data could further dampen expectations of a Federal Reserve rate cut this year, which is negative for gold. Still widely expected to be a last-minute deal on the U.S. debt ceiling also limited any recovery, with further losses expected later in the session. So we continue to sell gold in 1980 and expect to fall to 1945-1930-1920 this week. Let's wait and see.
Investors now await the release of minutes from the Federal Open Market Committee's May 2-3 meeting. As a rule of thumb, the minutes are likely to be less dovish than expected, which could keep gold under pressure after the Fed's dovish decision on May 3.
Investors will also need to keep an eye on a speech by Federal Reserve Governor Paul Waller for further news on the U.S. debt ceiling negotiations.
Republicans in the United States say there has been little progress in debt ceiling talks with the White House
Republicans in the U.S. House of Representatives said on Tuesday they had made little progress in talks with the White House to raise the government's $31.4 trillion borrowing limit and the United States was at risk of default in as soon as nine days.
The top negotiator for Republican House Speaker Kevin McCarthy said aides to President Joe Biden and McCarthy would meet again on Tuesday. The two parties remain deeply divided over how to rein in the federal deficit, with Democrats arguing that wealthy Americans and corporations should pay more in taxes and Republicans wanting to cut spending.
The Treasury Department has warned that the federal government may no longer have enough money to pay all its bills on June 1, which would lead to a default that would hit the U.S. economy and raise borrowing costs.
Republican negotiator Garret Graves said he saw little progress. "I don't think things are going well, and their refusal to really change the trajectory, to really cut spending, is a red line."
Mr. Biden and Mr. McCarthy spoke about the need to find a bipartisan compromise in a Monday night meeting on the debt ceiling, but they stuck to their policies, exposing the partisan divide.
The lack of clear progress continued to weigh on Wall Street, with the S&P 500 down more than 1 percent on Tuesday and global markets on edge, lending safe-haven support to gold.
With the risk of default looming, the US Treasury has asked federal agencies to communicate more about how they will receive payments in the coming days
The Treasury Department said Tuesday it is asking other federal agencies to provide clearer information and better communication about their expected payments in coming days to better predict when the government will run out of cash if the federal borrowing limit isn't raised.
A Treasury spokesman said the department was not asking agencies to defer any payments due, but rather to improve communication about future collections and payments.
"In order to make accurate projections around the debt ceiling, Treasury must have up-to-date information on the amount and timing of agency payments," the spokesman said in an emailed statement. "As with previous debt ceiling responses, Treasury will continue to communicate regularly with all levels of the federal government about its planned expenditures."
The Treasury is scrambling for ways to conserve the government's dwindling cash resources and could default as early as June 1, while the White House and congressional Republicans remain locked in tense negotiations over raising the $31.4 trillion borrowing limit.
The Treasury has asked agencies if they can defer some payments that are coming due, two people familiar with the matter said.
According to a memo purportedly sent by the Treasury Department to federal agencies, the department requires agencies to notify it at least two days in advance of all collections and payments of $50 million to $500 million, and five days in advance of all payments of more than $500 million.
The head of the IMF, Anastasia Georgieva, wants to see the US debt ceiling resolved "at the eleventh hour"
International Monetary Fund chief Anastasia Georgieva said on Tuesday she hoped the world economy would not have to wait until the last minute to see the US debt ceiling resolved.
The White House and Republican negotiators in Congress are seeking to break a months-long stalemate over raising the government's $31.4 trillion borrowing limit, with the United States facing the risk of defaulting on its debt in as little as nine days.
Georgieva told a news conference in London that a US default, which would hurt the US economy and the global economy, was a strong incentive for negotiators to reach a deal.
"In the past, debt ceiling negotiations in the US have always been quite tense, but a solution has always been found," she said. "Let's see to what extent this will go down to the wire. Hopefully we won't have to wait that long."
Her comments came after Ms Georgieva presented the IMF's annual review of the UK economy in London. It now expects the UK economy to avoid recession but continue to face high inflation and low growth in the short term.
The yield on the 10-year Treasury fell from a two-month high as debt ceiling talks continued
The yield on the 10-year U.S. Treasury note retreated from a two-month high hit earlier on Tuesday as traders focused on when Congress would reach a deal to raise the debt limit and the Treasury's auction of 2-year notes drew strong demand.
At the same time, yields on one-month Treasury bills, shunned for fear of payments coming due when the Treasury is most likely to run out of money, also fell from record highs.
Optimism that U.S. lawmakers were close to a deal to raise the debt ceiling helped push longer-dated Treasury yields higher earlier on Tuesday, but they fell back as negotiators still appeared to face wide differences.
U.S. President Joe Biden and congressional Republicans have ended another round of debt ceiling talks with little progress as the deadline to raise the government's $31.4 trillion borrowing limit nears.
Thierry Wizman, global currency and rates strategist at Macquarie in New York, said investors were focused on "the prospect of Treasury, Congress and the White House failing to reach an agreement by the deadline."
The yield on the 10-year Treasury note was down two basis points late Tuesday at 3.696 percent, after earlier reaching 3.761 percent, its highest since March 13.
The yield on one-month U.S. Treasury bills fell back to 5.594% Tuesday after reaching a record high of 5.888%.
Hawkish comments from Fed officials this week helped push yields higher, leading traders to increase bets on a June rate hike and lower their expectations for a rate cut later this year.
Fed funds futures traders now see a 28% chance of another quarter-point hike in June.
The Treasury sold $42 billion in two-year notes on Tuesday, drawing strong demand at a yield of 4.30 percent and a multiple of 2.90, the highest since January.
Euro zone factories are in trouble, with the manufacturing PMI contracting to a three-year low
Manufacturing activity in the euro zone shrank in May at its fastest pace since the coronavirus pandemic shuttered factories three years ago, threatening to dent the momentum of the services-driven economy. This also provided safe-haven support for gold prices.
According to the latest data from S&P Global, the preliminary euro zone manufacturing PMI unexpectedly fell to 44.6 in May, below market expectations of 46, further below the 50-point line that indicates contraction and to a 36-month low.
The preliminary euro zone services PMI also fell in May, although a reading of 55.9 still pointed to strong growth and was above market expectations of 55.6.
The S&P report adds to growing evidence that manufacturing woes in Germany, Europe's largest economy, are increasingly weighing on the region. That chimed with a survey by the German Chambers of Commerce and Industry (DIHK) published on Monday, which pointed to zero growth this year as companies saw no sign of an economic pick-up.
Sales of new U.S. homes rose to their highest level in about 13 months in April
Sales of new U.S. homes jumped to their highest level in 13 months in April, helped by a persistent shortage of previously owned homes on the market and a sharp drop in new home prices from last year's highs.
Tuesday's report from the Commerce Department follows data last week showing a sharp rise in permits for single-family homes. Homebuilder sentiment rose to its highest level in 10 months in May, with no sign yet that the recent tightening of credit conditions is weighing on the housing market, which has been hardest hit by the Fed's fastest rate-raising cycle since the 1980s.
"There is growing evidence that the housing market may have largely adjusted to higher mortgage rates, but the pullback in median prices is consistent with the assumption that builders may be targeting new homes to first-time buyers," said Conrad DeQuadros, senior economic adviser at Brean Capital.
New home sales rose 4.1 percent in April to a seasonally adjusted annual rate of 683,000 units, the highest level since March 2022.
The government revised sales, inventory and monthly supply data going back to January 2018.
New home sales are counted when contracts are signed, making them a leading indicator of the housing market. However, the data fluctuates from month to month.
Economists had forecast new home sales, which make up a small portion of U.S. home sales, falling to 665,000 units in April. Sales rebounded 11.8 per cent in April from a year earlier
The median price of a new home was $420,800, down 8.2 percent from a year ago. Sales were concentrated in the $300,000 to $499,000 price range.
Existing home inventory is still 44 per cent below pre-pandemic levels, according to the National Association of Realtors. The association also reported last week that home prices were rising in about half of the country, with multiple offers and many homes selling for more than their listing price.
The supply shortage has prompted buyers to aggressively take advantage of falling mortgage rates, allowing builders to aggressively build homes even as the overall housing market remains depressed.
There were 433,000 new homes on the market at the end of April, compared with 432,000 in March. At April's sales pace, it would take 7.6 months to sell off the existing supply of homes on the market, compared with 7.9 months in March.
The report, along with previous data showing a resilient labor market, strong retail sales and a rebound in factory production, suggested the economy regained momentum early in the second quarter.
The preliminary composite PMI output index rose to a 13-month high in May
Us business activity rose in May to a 13-month high, driven by strong growth in the services sector in the latest signs that the economy regained momentum early in the second quarter despite rising risks of recession.
S&p Global said on Tuesday that its preliminary US composite PMI output index, which tracks manufacturing and services, rose to 54.5 this month, the highest level since April 2022, after a final reading of 53.4 in April. It was the fourth month in a row that the PMI remained above 50, indicating growth in the private sector.
A gauge of new orders received by private firms jumped to 54.3 this month from 51.9 in April, the highest reading since May last year, led by the services sector, the survey showed, keeping services inflation high. Price pressures on factories have eased. A gauge of input prices paid by firms slipped to 58.5 from 61.2 in April, the survey showed.
Chris Williamson, chief business economist at S&P Global Market Intelligence: "During the pandemic, prices soared in the manufacturing sector due to high demand and deteriorating supply, and now it is the turn of the service sector to raise prices as demand picks up and cannot cope with the influx of orders due to insufficient capacity."
Businesses also boosted their payrolls, and companies reported that open positions were easier to fill.
The purchasing managers' index for the services sector rose to 55.1 from 53.6 in April, also a 13-month high, the survey showed. Economists polled by Reuters had forecast the services PMI falling to 52.6.
However, the manufacturing PMI fell to 48.5 from 50.2 in April. Economists had forecast a reading of 50. New orders fell, having risen in April for the first time in six months, and manufacturers reported that customers were focused on getting rid of current inventories. However, manufacturers are optimistic about business conditions in the year ahead.
A gauge of what factories pay for inputs fell below 50 for the first time in three years.
The dollar hit a two-month high as the lack of progress on the US debt ceiling kept traders nervous
The dollar index was also supported by risk aversion on Tuesday, hitting a two-month high against a basket of currencies as the lack of progress in talks to raise the U.S. debt ceiling hit investors' risk appetite.
"I think the dollar got a little bit of a boost today and stocks are down, mostly due to the lack of progress on the debt ceiling," said John Doyle, vice president of trading at Monex USA.
Doyle said that while most market participants expect a deal to eventually be reached, the delay is making traders nervous.
Meanwhile, the dollar was also supported by better than expected economic data and hawkish comments from regional Fed presidents, including Bullard and Kashkari, which raised the likelihood of further rate hikes.
The dollar index hit 103.65 on Tuesday, its highest level since March 20, and was at 103.53 late in New York.
Edward Moya, senior market analyst at OANDA, said: "The focus is slowly returning to inflation and all these hawkish statements we've been hearing from Fed officials. "What we are seeing is a market that may be positioning itself to bet on a stronger dollar later as Fed rate cuts are pushed back and the market is betting that rates will stay higher for longer."
The hawkish tone from Fed officials this week follows comments by Chairman Jerome Powell on Friday that were seen as dovish.
Mr Powell said on Friday that it was still unclear whether further rate hikes would be needed, with Fed officials balancing uncertainty about the impact of higher rates against the recent tightening of credit by banks with inflation proving elusive.
Moya noted that the market will be watching Wednesday's release of the minutes of the Fed's May meeting for any further signs of whether rate hikes may be on hold next month.
Overall, while default fears are providing some safe-haven support for gold, they are also supporting the dollar, which has been on a very strong run. Treasury yields, despite Tuesday's spike, are still near two-month highs. Relatively strong U.S. economic data could further dampen expectations of a Federal Reserve rate cut this year, which is negative for gold. Still widely expected to be a last-minute deal on the U.S. debt ceiling also limited any recovery, with further losses expected later in the session. So we continue to sell gold in 1980 and expect to fall to 1945-1930-1920 this week. Let's wait and see.
Trade active:
Don't worry 1985-1955-1940
Trade active:
Gold continues to fall and is currently quoted at 1960, shortly reaching our target.
Trade active:
1985-1956 Is this profit satisfactory? We've captured today's highs and temporary lows.
Trade active:
1985-1956 Is this profit satisfactory? We've captured today's highs and temporary lows.
Trade active:
We need to hold on to the orders we sold in 1985 and 1980 for further declines, and we will continue to sell gold in the right position today
Trade active:
Wait patiently for further declines
Trade active:
Orders sold 1985-1980 can be closed in 1958, then 1955-1958buy tp1975
Trade active:
Gold is falling fast and we need to look at 1939 and this is a hidden rally, and we can buy gold again in 1939-1940 tp1965-1970
Trade active:
Orders bought in 1939-1940 can be held continuously.
Trade active:
Yesterday we bought gold in 1939 and those who did not close the trade in 1950 can continue to hold it and break new highs today.
Trade active:
Orders to buy in 1939 can be closed in the 1958-1965 range, then gold sell 1940-1935 in 1658-1960, below 1935 continue to sell 1925-20 targets
Trade active:
Sell orders have started to profit, expect them to fall further
Trade active:
Orders sold in 1954 can be closed in 1948 and then bought in 1945-1947 gold, tp1960