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Investors Adjust Positions at the End of the Month, Gold Prices Soar

by Didimax Team

Gold prices rebounded in the trading session on Tuesday (May 30/). Spot gold rose by 0.6% to $1,954.09 an ounce, which earlier briefly touched its lowest level since March 17. 

The gold futures increased by 0.5% to $1,953.10. The XAU/USD chart shows an increase of almost 1% to $1,962.48. Market optimism about the achievement of US debt ceiling negotiations has now turned to strengthen precious metal prices. 

Traders repriced, so the United States Dollar slipped from a 10-week high and triggered gold buying tonight. An interim agreement on the debt ceiling will be drafted further to Congress.

That also raise optimism about avoiding a default. The postponement of the US Treasury Minister's debt deal deadline, which was originally June 1 to June 5, also increases the chances of reaching an agreement. 


Repricing from the Fed also Affects the Gold

While previous concerns about an American debt deal briefly supported the gold prices, the repricing that occurred from the Federal Reserve's rate hike path, will keep gold under pressure.

It was informed by the Saxo’s Bank's head of commodity strategy, Ole Hansen, in an occasion. Meanwhile, Jim Wyckoff as analyst from Kitco Metals has his own opinion. 

He said that position adjustments commonly made by investors at the end of the month, also contributed to the strengthening of gold prices tonight. Fund Managers are profiting from short positions, as well as buybacks. 

That is, an increase is likely to occur only today and be followed by a sideways range or low. It will still happen until there is a catalyst that can change the trend. 

Gold Awaits Expectations from the Impact of High Interest Rates 

On the other hand, after the long-weekend holiday yesterday, the American traders are assessing the US PCE Index inflation data. May inflation was quite surprising with a yield of 0.4%.

It was higher than expectations of stagnant and the PCE index of 0.3% in April. Still high inflation will hold the Fed hawkish. Gold prices tend to weaken amid high interest rates. 

However, the impact of high interest rates may make gold a good asset for safe havens. While the Fed may be slow to lower interest rates due to attention to inflation, a deteriorating economy will eventually force them to lower rates. 

That could eliminate support for the dollar and help lift gold prices. This opinion was shared by Heraeus As an analyst in a note. 

Before, Gold was Stable

Before, gold safe haven assets were observed to be still trading stably within a limited range on Monday. Trading conditions of the precious metal appear to be still sluggish.

That was even though the American debt ceiling negotiations have been completed. As a result, these lackluster market conditions make the gold trading range narrower.

Last week, this commodity prices closed at USD1946.63 per troy ounce or weakened by 1.52% compared to the previous week's closing price; This is the lowest level in the last two months.

That was also the weakest in the third consecutive week of weakness due to the strengthening of the American Dollar and rising US bond yields. The main factor in the slump in these prices last week was the release of FOMC minutes.

The FOMC Meeting is Hawkish

The FOMC meetings were considered hawkish. In the minutes, Fed officials indicated they would not cut their benchmark interest rate yet. Some committee members still want a rate hike. 

This is because inflation is assumed to be difficult to fall sharply in the next few months as expected by the central bank. If inflation is still high and exceeds expectations, the opportunity for high interest rates is still open.

In addition to the FOMC minutes, the results of the Core PCE Price Index which is the Fed's favorite inflation indicator showed an increase. April's Core PCE Price Index rose to 0.4% m/m and 4.7% y/y.



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