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| How did the Federal Reserve cause the price of gold to go below $1,970? |
How did the Federal Reserve cause the price of gold to go below $1,970?
Spot gold contracts dropped 0.71% to $1967.76 after the release of positive unemployment data, while futures slid 0.73% to $1970.4.
What are the causes of the sharp decline in gold prices?
Fed member Logan said that the recent data and improvement in inflation suggest that raising US interest rates should not be stopped.
The Philadelphia index of industries was better than predicted, as it decreased by 10.4 instead of the expected 19.8 drop. Unemployment numbers showed 242 thousand jobless claims, which is fewer than the 264 thousand last week and less than the predicted 254 thousand.
What is the interest rate forecast?
The likelihood of the Federal Reserve raising interest rates to 5.50% at their June meeting has increased to 40%, according to Fed SWAPS. Investing's interest rate fixation tool still suggests that only 70.3% believe this will occur, while 29.7% do not think a rate hike is likely.
Morning gold
Gold prices decreased slightly on Thursday due to the strength of the dollar and optimism about the US debt ceiling negotiations, which reduced the appeal of gold.
What would happen if America defaults on its debt and the dollar loses its value?
How do gold and the dollar relate?
Gold futures dropped 0.13% to $1,982 per ounce, while spot contracts declined by 0.1% to $1,979 per ounce. Meanwhile, the dollar index increased 0.06% to 102.79 points.
Yesterday, gold was settled.
Yesterday, gold prices dropped to their lowest level since the end of March due to the strengthening of the dollar and ongoing negotiations regarding the US debt ceiling crisis. At settlement, gold futures had fallen by 0.4%, or $8.1, to $1984.9 per ounce.
The Possibility of Gaining Interest on Gold Investments
Gold prices could stay within the range of $1965-2020 over the next couple of weeks, according to Edward Meer, metals analyst at Marex. However, optimism around the US debt ceiling is causing downward pressure on gold. Strong economic data from the US led to speculation that the Federal Reserve will not pause in June and this could lead to a decline in gold prices. Market participants currently estimate that there is a 76.2% chance that interest rates will remain unchanged in June, as per CME FedWatch data.
The International Monetary Fund's Senior Deputy Managing Director, Gita Gopinath, has expressed worries about widespread inflationary pressure in many economies and the potential for high inflation rates. Consequently, central banks need to be aware that if they do not take appropriate action now, they may have to employ harsher measures in the future. Investors are keeping an eye out for US unemployment data on Thursday and will pay close attention to Federal Reserve Chairman Jerome Powell's speech on Friday for indications of future monetary policy.
The Crisis of Raising the Debt Limit
On Wednesday, President Joe Biden and House Republican Leader Kevin McCarthy both expressed their determination to reach an agreement to raise the US federal government's debt ceiling of $31.4 trillion soon in order to prevent a default. This provided support for the US dollar and bond yields, while weakening the price of gold. During yesterday's meeting with congressional leaders, President Biden expressed confidence that the United States would meet its repayments and remain committed to its obligations.
The recent progress with the debt ceiling has relieved some of the uncertainty in the markets, which has affected gold prices. JPMorgan CEO Jamie Dimon said yesterday that it is unlikely for the US government to default on its payments.
Mohammed El-Erian, an economist, has warned that the US defaulting on its debt could be dangerous. With Congress failing to agree to raise the debt ceiling, he said that it is not only a threat to Americans' financial stability, but also has the potential to damage America's reputation globally for sound economic management. El-Erian is an economic advisor for Allianz (TADAWUL:8040).
The US Federal Reserve has made statements that have caused confusion in the markets, which are seen as significant indicators.
Dallas Federal Reserve Bank President Lori Logan recently expressed her concern that inflation is still too high for the Fed to stop raising interest rates in June. The latest economic data does not support further rate hikes at the upcoming June meeting.
Federal Reserve Chairman and Vice Presidential nominee Philip Jefferson acknowledged that while some progress has been made in reducing inflation, it is too early to determine the full effects of recent interest rate increases. He further stated that inflation levels remain high, with a particular lack of progress seen in prices for services excluding housing.
Federal Reserve Chairman Jerome Powell has acknowledged that the economy has "slowed dramatically" in 2019. He does not anticipate a recession, but predicts there will be slower job growth and an increase in unemployment. Additionally, he believes that there could be further consequences from the Fed's higher interest rates and potential 'downside risks' from banking issues. He said he will take all of these factors into consideration ahead of the Fed's June meeting when deciding whether to keep interest rates steady or continue with rate hikes.
Are you prepared for an economic crash of 89%, similar to what happened in 1929?
There are clear indicators that an economic crisis is coming, despite our attempts to ignore the warnings. The signs show that the good times have come to an end and those who don't take action now will regret it later.
The New York Empire State Index recently showed a poor result of -31.8, which has only occurred during the pandemic and in the aftermath of the 2009 financial crisis. The number of bankruptcies in the US is now higher than it has been since 2010, and Atlanta Fed President Rafael Bostick has warned that monetary policy is just starting to affect the economy.
Roger Babson made history in September 1929 when he warned of an impending stock market crash at a business conference in Massachusetts. Those who are expecting the government or central bank to announce the economy is heading for a recession and to prepare to lose their jobs may be unpleasantly surprised, as Geoff Thomas wrote about in his recent article.
Financial markets have taken Babson's warning seriously, as it could potentially disrupt spot trading. economists disagreed with his thesis, hinting that a recovery was on the horizon. Financial expert Bernard Baruch sent a telegram to Winston Churchill stating that "the financial storm had passed", and US President H. Hoover reassured Americans that there was nothing to be worried about.
On October 29, 1929 - just 55 days after economist Roger Babson warned of a possible bubble forming - the stock market experienced what has since become known as 'Black Friday', seeing a 12 percent plunge. Over the course of the next three years, the market would continue to drop until it reached an 89 percent loss in total by July 1932. Despite his warnings, Babson was labeled a pessimist.
No one wants to think about the possibility of an economic crash, but the reality is that neither governments nor central banks have the power to prevent it. All they can do is try to ease the pain by pumping money in, but this only makes the bubble bigger and eventually causes a more severe crash than in 1929.
Wall Street can rely on the media and television to help maintain the current state of affairs for as long as possible. Unfortunately, since many governments around the world are already bankrupt, their typical attempts to fix things - such as tariffs, expropriations, and more government control - only make matters worse. As a result, this crisis is likely to be even more severe than in 1929 since people have lost trust in their governments.