HG Markets

XAU Expects Big Weekly Gains on Fed Pause and Debt Ceiling Raising


Harvest Global Markets :

Optimistic predictions of a temporary halt in the Federal Reserve’s tightening measures and advancement in settling the U.S. debt ceiling issue are pushing gold (XAU) towards its greatest weekly rise in almost two months. Gold is on pace to have its best week since early April, with a 1.7% advance so far this week. The gold market is now experiencing bullish momentum, and additional price increases are possible given that it is predicted that the Fed will maintain its current policy in June.

Patrick Harker, president of the Philadelphia Federal Reserve, expressed his opposition to raising interest rates at the upcoming rate-setting meeting in June. Fed Member Harker favoured pausing to assess the situation despite admitting the continuing slow fall in high inflation. He emphasised how prior rate hikes by the Fed had a cooling effect, particularly on house prices, and voiced concern about the dynamics of inflation and the rate of credit tightening. Fed Member Harker recommended that the Fed hold off on future rate hikes for the time being and instead stay in restrictive territory.

Fed Member Harker’s position is in line with market forecasts, which indicate a 73.7% likelihood of no change in interest rates in June. When interest rates increase, gold typically loses appeal because it doesn’t have a yield of its own. Additionally, gold is more affordable for buyers holding other currencies at the moment because the U.S. dollar index is trading close to a one-week low.

On the other hand, the U.S. Senate successfully passed a package to raise the government’s debt ceiling that was supported by President Joe Biden, preventing a historic default that might have happened for the first time ever.

Gold is in a precarious position as it is currently trading below the pivot point of $2000 per ounce. The closest resistance at this level is also a potential starting point for an upward acceleration. A sustained decline below $1990 will signal that there is increasing selling pressure. If this generates sufficient downward momentum, watch for the selling to potentially continue into $1950. Strong counter-trend buyers will reappear if there is a prolonged advance over $2000. If this generates sufficient momentum in the near term, watch for a move up into the $2030 region.

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