The current weak U.S. Dollar and investors’ desire for shelter during turbulent times are supporting gold prices.
The U.S. Dollar is in a downside trend as investors expect the Federal Reserve (Fed) to end its interest rate hike cycle. More than 80% of investors predict that the Fed will leave its interest rates unchanged at 5.25%, during its June meeting, while 63% of investors think the Fed will be forced to start lowering rates in September 2023.
Macroeconomic and geopolitical risks largely contribute to gold prices, as they are dramatically rising. Fears of a global economic slowdown along with still high inflation are raging. The effects of the banking crisis in the United States continues to devastate the investment community, even though financial authorities supposedly resolved this issue in March. There are some minor chances that the debt ceiling challenged will not be resolved by the deadline in early June, which may result in a technical default of the United States. Although, such a possibility is highly unlikely, it is still a possibility. Until these issues are resolved, investors will remain nervous and just to emphasise just how much, JP Morgan has put together a “war room” where the matter is discussed every day. In the case of a default, U.S. debt prices will drop dramatically, while gold prices are likely to sky rocket.
Central banks are largely contributing to an upside for gold prices amid geopolitical tightening and sanctions that may hit some nations unexpectedly. Central banks across the globe bought 228 tons of gold during January-March 2023. This is above the 34% previous record set in Q1 2013.
So, there are a large number of factors that may push gold prices up. However, the May market rebound in gold prices came to an end close to $2080 per troy ounce, and rolled back to $2004 per ounce. The reason is that the debt ceiling, interest rates, and inflation issues is rather controversial. Technically, gold prices may go further down to the strong support level at $1943-1958 per ounce. In this case interesting buy opportunities for gold may emerge.
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