Price Performance Indicators

Gold Focus :

1. ICDX gold price weakened -0.51% in the week (08/05 - 12/05).
2. US inflation data and US debt default worries

Market Review

ICDX gold price weaken by -0.51% compared to the previous week, influenced by still hot inflation data which triggered policy makers to be on the hawkish side related to interest rates. The dollar strengthened by 1.30% in the week weighing on the gold price movement.

US Department of Labor reported US Consumer Price Index (CPI) on an annual basis moved below 5% for the first time in two years but with a less significant decline from the previous month. US CPI y/y increased 4.9% from a year earlier but lower than expected and the previous month's increase of 5%. On a monthly basis, US CPI rose 0.4% after rising 0.1% in March. Separate data showed the US producer price index (PPI) on a monthly basis rose 0.2% in April, the data for March was revised to -0.4% from -0.5% in the previous report. Inflation, which is still above the Fed's target of 2%, dampens market expectations that the Fed might start cutting interest rates this year.

New York Fed President John Williams sees the need to maintain a tight policy policy to ensure inflation slows down to the target 2% level and sees no reason to cut rates this year. Minneapolis Fed President Neel Kashkari said a prolonged period of high interest rates could put more pressure on banks but needed if inflation remained high, given the persistent inflation data that surprised policymakers and pushed them towards the hawkish side of the US central bank's monetary policy. Fed Board Member of Governors Michelle Bowman said neither the inflation report nor the jobs report provided consistent evidence of a reduction in inflation and hoped policy rates would need to remain tight for some time to bring inflation down.

On the other hand, the issue of a potential US default deepens economic uncertainty. US Treasury Secretary Janet Yellen previously said the Treasury Department might not be able to pay all of the government's bills by June 1 without an increase in the federal debt limit. Yellen also warned that a US debt default could result in millions of jobs losing. World Bank President David Malpass told Reuters the risk of a US default added to the problems faced by the global economy.

Market View

US Debt Default Fears and The Fed's Monetary Policy Path

US President Joe Biden and parliament hit a deadlock on talks over increasing the US $31.4 trillion debt limit last Tuesday but both agreed to further talks. US Treasury Secretary Janet Yellen called discussions over increasing the US debt ceiling more difficult than ever and hoped a solution could be found to prevent US defaults. German Finance Minister Christian Lindner hopes US politicians will take a mature decision in talks to raise the US debt ceiling, warning of risks to the global economy if they do not. Gold as a safe-haven asset tends to be eyed during times of uncertainty in the global economic situation. The Fed's interest rate hike path still becomes the focus of the market. US economic data is of concern as an indication of the continuation of the US central bank's monetary policy. Fed President St. Louis James Bullard said he was ready to be open-minded and join other officials in taking a stance on relying to the data on whether to raise interest rates or hold them steady at the next meeting. Chicago Fed President Austan Goolsbee said it was too early to judge whether the central bank would need to raise interest rates again at its June meeting. High interest rates dull the appeal of gold, which doesn't yield much better than interest-bearing financial products.

WEEKLY ECONOMIC DATA & EVENTS CALENDAR

Source: ICDX Research