Gold Prices Surge as Debt Ceiling Agreement Boosts Market Sentiment

The rally in gold, and the corresponding move in prices for US Treasury paper, seems mostly driven by the weekend’s news that the leaders of the US executive and legislative branches have reached an agreement to “raise the debt ceiling,” relieving the pressure of a (theoretically) looming default of US debt payments. The US stock market has been less reactive, which seems to be the more reasonable response on Tuesday morning, as the agreement does still need to pass in Congress. The theatrics of getting the bill passed this week will likely be a key driver of market movement for stocks as well as gold over the next few days, and the two assets’ paths may be tethered together given the sensitivity they both have to US Dollar volatility.

Thursday, June 1 at 10 am EDT // ISM Manufacturing Index (May)
[consensus est.: 47.0 // prev.: 47.1]

With the table appearing to be set for a Fed hike pause in June, the matter still doesn’t quite feel settled. Among other things, what this means for the gold market (and, to an extent, the US stock market, given investors there, too, are hoping for lower rates sooner than later) is that data reports like Thursday’s Manufacturing sector PMI are a potential point of weakness if the survey indicates that industrial activity in the US economy is as least holding steady (let alone if there’s an upside surprise here and the headline number rises closer to 50.0 again.) This is because such a result implies one less unit of pressure on the Fed to hit the brakes (and, eventually, to begin lowering rates) at their next meeting..

Friday, June 2 at 8:30 am EDT // May Jobs Report
[(NFP) consensus est.: +190K // prev.: +253K]
[(unemployment) consensus est.: 3.5% // prev.: 3.4%]

Although it’s more than a bit tricky to project how heavily Dollar-tied assets like gold and other major commodities and the US stock market will be impacted or moved by the (hopefully) end stages of 2023’s debt ceiling negotiations later this week, it remains safe to assume some volatility around the release of the May Jobs Report on Friday morning. The consensus is again looking for the headline Non-Farm Payrolls number to dip below 200K— a number that would indicate some softening but a still robust labor market in the US— however, given the performance of the last 12-18 months, there seems little reason to bet against the constant out-performance that has become the norm. Similar to Thursday’s “softer” data set on manufacturing sector activity, unless the projection for an FOMC-pause somehow becomes more concrete over the course of this truncated week, this looks more likely than not to be a point of weakness for any upward momentum in gold prices, come Friday morning.

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The wrangling and horse-trading of political capital to get this weekend’s debt ceiling agreement approved by Congress in bill form will likely be the dominant driver of most major asset classes this week— the precious metals market and US stocks not least among those impacted— for as long as that thorny process takes. Once the market has cleared that hurdle, presumably around mid-week, investors’ attention can be expected to shift back to solving whether the Fed really will pause rate hikes in June, alleviating (some) pressure on both gold and equities for the near- to medium-term.

Tuesday: Richmond Fed President Tom Barkin (non-voter) (1 pm EDT)

Wednesday: Fed Governor Michelle Bowman (FOMC voter) (9 am); Philly Fed President Patrick Harker (FOMC voter) (12:30 pm); Fed Governor Phillip Jefferson (1:30 pm)

Thursday: Harker (1 pm)

And that’s how the week lays out ahead of us, traders. As always, I wish you all the very best of luck in your markets in the coming days, and I’ll look forward to seeing you all back here next week.