US Debt ceiling deal reached to avoid default

By Dr. Renisha Chainani, Head- Research, Augmont – Gold for all 

The main factor affecting the price of gold and silver last week was the macro data. Personal  spending, the PCE inflation measures, and the durable goods number were all significantly  above forecasts. Interest Rate expectation has turned more hawkish after these positive data. Given this situation, policymakers might be hesitant to put things on hold and instead decide  to raise the policy rate by another quarter point at their meeting in June, bringing it to 5.25- 5.50%. A sharp reversal from last week’s sentiment can be seen in Fed Fund futures prices,  which show markets pricing in a nearly 65% chance of a hike in June. This is supporting US  Treasury Yield and Dollar Index to rise as a safe heaven, while gold and silver prices are being  pressured. 

To avoid default before a June deadline, US lawmakers over the weekend came to an “in  principle” agreement to raise the US spending ceiling for two years up to 1st Jan 2025.  Republicans and Democrats reached a tentative agreement to suspend the $31.4 trillion debt  ceiling after weeks of difficult negotiations. This agreement now needs to be approved by the  Republican-controlled House of Representatives and Democratic-led Senate before June 5 in  order to prevent a catastrophic first-ever default. Gains in risky assets were sparked by the  news, which abated some concerns about the severe economic disruption that would result  from a U.S. default. Gold and Silver prices are expected to see a relief rally and a short covering rally at the start of the week after the debt deal news announcement. 

Gold prices have taken support last week at $1936, which is critical support at the uptrend  line bullish rally from $1620 to $2085. Prices need to sustain at this support, if a bullish rally  has to continue, otherwise it might fall to $1908. While Silver prices have retraced 38.2% to  $23 of its rally from $18 to $26.4. Prices need to sustain this support to continue their bull  run, otherwise, it might fall to $22.10. These dips should be used as buying opportunities as  Gold and Silver prices are expected to rise 20% from current levels in FY 2023-24 to $2400  (Rs 70000) for gold and $30 (Rs 90000) for silver. 



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