Gold price settles above $2,020 as Yellen warns of ‘constitutional crisis’ if debt cap not raised

With the chance of a U.S. default in a matter of weeks, U.S. Treasury Secretary Janet Yellen warned that if the debt ceiling is not lifted, it could trigger a "constitutional crisis."

"It's Congress's job to do this. If they fail to do it, we will have an economic and financial catastrophe that will be of our own making," Yellen told ABC on Sunday. "And we should not get to the point where we need to consider whether the president can go on issuing debt. This would be a constitutional crisis."

The debt cap negotiations should not be done "with a gun to the head of the American people," Yellen added.

The latest message comes ahead of U.S. President Joe Biden's Tuesday meeting with Republican House Speaker Kevin McCarthy, Republican Senate Minority Leader Mitch McConnell and top congressional Democrats to discuss the debt issue.

"The meeting between President Biden and Republican leaders on Tuesday to discuss the U.S. debt ceiling will be closely watched. We think that political talks will go on for some time before an agreement to raise the debt ceiling is finally reached, which could weigh on risk appetite," Capital Economics commodity economists said.

Negotiations are currently at an impasse after the Republican-led House of Representatives passed a bill in April that would raise the debt ceiling conditional on extensive spending cuts, which Biden is against.

The federal government reached the cap on borrowing back in January. Since then, the Treasury has employed "extraordinary measures" to pay the bills.

Last week, Yellen told Congress that the U.S. could run out of money by June 1. "After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government's obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time," Yellen wrote in a letter to House Speaker Kevin McCarthy.

Uncertainty over the debt ceiling has been one of gold's drivers during the past month. "Gold and silver prices rose, which can only be explained by safe-haven demand in a week when another U.S. bank failed and concerns mounted about the approach of the U.S. debt ceiling," economists at Capital Economics said. "We suspect that the gold price will remain elevated while concerns about the banking sector and debt ceiling persist."

On Monday, gold hit a daily high of $2,037.10 an ounce, with June Comex gold futures last trading at $2,028.00, up 0.16% on the day.

"Gold looks like it wants to make another run towards record territory. Too many recessionary risks are on the table for gold to see a significant pullback," OANDA senior market analyst Edward Moya said.

Analysts expect negotiations over the debt ceiling to get right down to the wire but ultimately avoid a default. In the meantime, volatility remains the name of the game, said ABN AMRO senior U.S. economist Bill Diviney.

"Financial markets are likely to become increasingly sensitive to developments over the coming weeks as the U.S. Treasury runs down its cash buffers," Diviney said Monday. "Similar to the 2011 debt ceiling impasse, the government is divided along partisan lines, with Democrats controlling the presidency and the Senate, and Republicans controlling the House."

To learn more about how gold behaved during the 2011 debt ceiling crisis, click here.

A default scenario, something that most analysts are ruling out, will have profound negative implications for the U.S. economy.

"A technical default – one that involves the government missing coupon payments and therefore triggering credit default swaps – is highly unlikely. Should the Treasury run out of cash, we expect it to prioritise bond coupon payments over other financial commitments, even if that means swingeing cuts to spending and a partial government shutdown," Diviney said. "However, the longer this were to go on for, the negative impact on financial markets and on the economy would become increasingly non-linear."

One major negative effect would be bond yields falling, with demand for safe havens offsetting higher risk premium effects, Diviney added. "This happened during the 2011 debt ceiling impasse when S&P downgraded the U.S. sovereign from AAA to AA+," he said.

Anna Golubova

For Kitco News

Time to Buy Gold and Silver

David

News Bites The U.S. and China are on ‘brink of war’ as gold touches record highs and banking sector troubles intensify

News Bites

The U.S. and China are on 'brink of war' as gold touches record highs and banking sector troubles intensify

Gold's price action was defined by major volatility this week. Gold Comex futures tested record highs as the banking sector troubles intensified. Markets also dissected Federal Reserve Chair Jerome Powell's messaging, while Friday's stronger-than-expected U.S. employment report weighed on gold.

Here's a look at Kitco's top three stories of the week:

3. Comex gold prices test record highs and touch $2,085 an ounce.

2. There's a new U.S. debt ceiling deadline.

1. Ray Dalio: The U.S. and China are on 'the brink of an economic resources war'

Anna Golubova

For Kitco News

Time to Buy Gold and Silver

David

Gold price to keep trading at historically high levels as markets monitor debt ceiling debate and credit conditions – analysts

Concerns about credit conditions and the debt ceiling debate will keep gold prices at historically elevated levels for the next few months, according to analysts.

The gold market retreated Friday as the banking fears subsided and the U.S. April employment report came in better than expected.

The U.S. unemployment rate fell back to a 53-year low of 3.4%, while the economy added 253,000 jobs last month.

"The employment market is showing clear resilience despite the drastic increase to U.S. interest rates over the last year and this resilience is going to afford Fed policymakers patie

Gold price to keep trading at historically high levels as markets monitor debt ceiling debate and credit conditions – analysts

Concerns about credit conditions and the debt ceiling debate will keep gold prices at historically elevated levels for the next few months, according to analysts.

The gold market retreated Friday as the banking fears subsided and the U.S. April employment report came in better than expected.

The U.S. unemployment rate fell back to a 53-year low of 3.4%, while the economy added 253,000 jobs last month.

"The employment market is showing clear resilience despite the drastic increase to U.S. interest rates over the last year and this resilience is going to afford Fed policymakers patience to ultimately continue to watch economic data before making any decisions over the narrative on the future monetary policy outlook," said CompareBroker.io chief analyst Jameel Ahmad.

June Comex gold futures were last at $2,024.30 an ounce, down 1.3% on the day. This came after Comex prices tested record highs of $2,085.40 earlier in the week.

"Banking worries seem to have disappeared today. But that is a story that is not going away any time soon," OANDA senior market analyst Edward Moya told Kitco News. "Overall, risks are to still elevated, credit conditions will continue to tighten. And with U.S. President Joe Biden meeting for debt ceiling talks. The risks will return."

The gold market won't face any serious obstacles until the debt ceiling issue and the banking sector turmoil are resolved, said Capital Economics commodities economist Edward Gardner.

"Concern about banks and the U.S. debt ceiling will keep the gold price historically high in the next few months. However, once these worries fade, we think that longer-term headwinds will come into play," Gardner said Friday. "Our new indicator of financial stress in advanced economies indicates that the gold price is benefiting from safe-haven demand related to banking troubles."

Washington is currently at a stalemate on the U.S. debt ceiling increase, which increases the risk of a default by June 1.

RBC Wealth Management warned this week that this year's political and economic backdrop is "one of the most challenging."

The last time the debt ceiling really shook markets was in 2011, and there are some parallels to be drawn between then and now.

"In 2011, the U.S. reached its debt ceiling on 16th May and, after much political wrangling, passed legislation to raise it on 1st August. On that date, the gold price was up by 9% month on month, which was probably in part due to U.S. government finance concerns. These same concerns have, of course, recently resurfaced," Gardner.

These issues might plague markets for the next few months, which will keep gold around the $2,000 level, according to Capital Economics.

Capturing record highs again in the short term might be challenging, but gold will likely get there again, Moya said.

"Inflation will prove to be sticky, which will justify the Fed maintaining a higher for longer stance. But the outlook for gold is bullish. Do we recapture record high? There is a good case to be made that eventually, we will."

Gold's key support is currently at $1,990, and the first resistance could be at $2,040 an ounce.

"The Fed is done for now. June meeting is likely to be a pause. Gold's key drivers will be the debt ceiling, banking concerns, and recession risks," Moya said.

Next week's data

Wednesday: U.S. CPI

Thursday: Bank of England rate decision, U.S. jobless claims, U.S. PPI

Friday: Michigan consumer sentiment

Anna Golubova

For Kitco News

Time to Buy Gold and Silver

David

Gold flirts with a record high after three days of consecutive gains

Gold futures have traded almost $100 higher from Tuesday's open to today's intraday high. Gold opened at approximately $1990 on Tuesday and closed at approximately $2022 after factoring in a daily gain of over $30. Yesterday gold had a moderate gain moving the most active June contract to an intraday high of $2049 and closing at approximately $2037.

However, today's range was the largest of the last 3 days trading to a low of $2038.50 and a high of $2085.40. As of 5:50 PM EDT most active June Comex gold contract is fixed at $2058.60 after factoring in a gain of $21.60 gaining just over 1%.

The Federal Reserve raised rates by ¼% yesterday, taking its benchmark Fed funds rate to its highest level since 2008. In fourteen months, the Fed has raised rates a total of ten times, once at every FOMC meeting since March 2022.

The Fed has taken its benchmark rate from near zero to between 5% and 5 ¼ %. More importantly, the Fed indicated it is ready to pause raising rates as it gauges the net effect of the rate hikes already implemented.

According to the CME's FedWatch tool, there is a 79.5% probability that the Federal Reserve will pause at its June FOMC meeting and maintain its current benchmark rate between 5% and 5 ¼%. However, more startling is the probability of 20.5% that the Federal Reserve will implement an interest rate cut of ¼%. This goes against the strong narrative and resolve that the Fed has maintained since the release of the December 2022 "Dot Plot".

Pausing rate hikes at the next FOMC meeting is an extremely logical move for the Federal Reserve. This will allow the Fed to assess the damage from recent bank failures, and gauge inflationary levels which will lag behind rate hikes already implemented by the Federal Reserve. A pause would also allow the Fed to wait for a resolution over the US debt ceiling dilemma.

The chart above is a weekly chart of the continuous contract of gold futures. The horizontal line is placed at the record high. The most likely outcome of this rally will be that the triple top will be taken out and result in a new record high for the price of gold.

Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David

Gold gains traction as Fed hints at a pause after raising rates Â¼%

Gold gains traction as Fed hints at a pause after raising rates ¼%

The Federal Reserve concluded this month's FOMC meeting and as expected the Fed raised its terminal rate by ¼%. This takes the Fed benchmark rate to between 5% and 5 ¼%. Most importantly, after 10 consecutive rate hikes the Fed signaled that they may finally enact a pause of further rate increases at the next FOMC meeting in June.

This would allow the Federal Reserve to assess the damage from recent bank failures, and gauge inflationary levels which will lag behind rate hikes by the Federal Reserve. A pause would also allow the Fed to wait for a resolution over the US debt ceiling dilemma.

The rate hikes enacted by the Federal Reserve have definitively taken inflation down, it has also caused tremendous fallout. Continued rate hikes not only would have a detrimental effect on the economy but it would also have less of an effect on reducing inflation. Inflation has hit an area in which many sectors remain persistent or sticky and as such continued rate hikes would not have the intended effect of reducing inflation but would have the unintended effect of causing more harm to the financial system.

Gold futures broke out of their defined trading range between $1980 and $2020 yesterday. On a technical basis, prices were stuck inside of an asymmetrical triangle with a descending upper resistance line and a flat bottom. Yesterday's strong upside move took current gold futures pricing well above the upper-level resistance line. This resistance line proved to be definitive support as gold traded to a low of $2016 today which is precisely above the former resistance line which I now believe will act as a technical level of support.

The chart above is a 240-minute Japanese candlestick chart of June gold futures. It clearly illustrates both the flat bottom that is defined by multiple occasions in which gold traded to $1980 but close well above it. It also illustrates that gold has traded with a series of lower highs up until yesterday's breakout which took gold above its former resistance level.

As of 4:50 PM EDT gold futures basis, the most active June contract is up $25.10 and fixed at $2048.50.

Concerns about the banking crisis and the debt-ceiling remain unanswered

Now that the Federal Reserve has concluded this month's FOMC meeting, market participants will focus intensely on two major events that could lead to tremendous economic upheaval. There continues to be angst about the political standoff between the Democratic and Republican legislators regarding raising the debt ceiling. The fact that the government will not be able to meet its obligations much sooner than anticipated earlier is troublesome. More importantly, the divide between the Democrats and Republicans has never been wider which will make it very difficult for a compromise to be reached. As I've said over the last two days, during other instances where the debt ceiling had to be raised legislators played “kick the can down the road" however in this instance with so little time left to resolve the issue it seems are “playing a game of chicken".

Lastly, the banking crisis continues to be extremely worrisome as the possibility of more banks becoming insolvent remains. Collectively, the debt crisis remaining unresolved and the potential for more banks to become insolvent will have an exceedingly detrimental effect on the economy. These factors will continue to be highly supportive of gold moving higher.

Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David

Gold surges as concerns of banking crisis and the debt-ceiling crisis re-emerge

With the FOMC meeting to conclude tomorrow the Federal Reserve will most likely announce a ¼% rate hike and attention has shifted away from the Fed as market participants focus on other potential calamities within the financial markets.

Genuine angst regarding the debt ceiling and concern about the re-emergence of the banking crisis has weighed heavily on the minds of market participants. These concerns are so significant that for the first time, the CME's FedWatch tool is indicating that there is a 15% probability that the Federal Reserve will cut rates at the June FOMC meeting. The CME's FedWatch tool predicts that there is an 85% probability that the Fed will pause rate hikes in June. If so, this would be the first time the Federal Reserve has either not raised rates, or cut rates over the last 10 consecutive FOMC meetings.

Debt ceiling anxiety grows after U.S. Treasury Secretary Janet Yellen in a letter yesterday said, “After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government's obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time.”

This means that there is very little time left for a solution and compromise to be reached. Considering that the divide between the desires of the Republican Party and the Democratic Party are so diametrically different it is hard to fathom a compromise will be reached in such a short time.

More alarming is that there are very few days in which members of the House, and the Senate will all be available to meet with the president. Considering the compromise that must be made by both parties there is an extreme uncertainty that a solution can be reached promptly.

The implications of solving the debt ceiling crisis before the government is unable to meet its obligations are profound. The economic effect if the two sides cannot reach an agreement is an unprecedented event. The repercussions are at best an economic recession and according to Secretary Yellen would have profound implications in perpetuity.

Now that the government has less time than previously believed to raise or suspend the debt limit it increases the probability of an 11th-hour showdown. Historically legislators have played kick the can, but in this instance, they are playing chicken.

The net result of all of these events occurring at the same time led to in a tremendous upside surge in gold prices. Gold futures traded to a high today of $2026.40. As of 5:30 EST the most active June 2023 contract of gold is currently up over $25 and fixed at $2025.60. Gold broke out of a pattern called a “descending top and a flat bottom” as today's solid gains broke above the upper descending trendline.

Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David

Gold, silver back off after better-than-expected U.S. manufacturing reports

Gold prices are moderately lower and silver has lost all the big early price gains in midday U.S. trading Monday. Some upbeat U.S. economic data and positive remarks from the head of the largest U.S. bank worked to pressure the two precious metals markets. June gold was last down $8.10 at $1,990.90 and July silver was down $0.006 at $25.25.

(By the way, I encourage you to check out my new daily item, "Kitco daily macro-economic/business digest." If you need to be up to speed quickly on the latest news that's impacting or has the potential to impact the general marketplace, this report can be your one-stop shopping. Check it out and let me know what you think.)

The gold and silver markets saw selling pressure develop at mid-morning, right after the U.S. ISM April manufacturing purchasing managers index (PMI) and U.S. construction spending reports came in better than market expectations. Also, JP Morgan chief Jamie Dimon said in a conference call after JP Morgan took over the failed First Republic Bank that the U.S. banking sector is now very healthy. Earlier, some safe-haven demand in gold and silver was seen following the weekend news the FDIC shut First Republic in the second-largest U.S. bank failure ever.

On tap this week is the Federal Reserve's Open Market Committee (FOMC) meeting that begins Tuesday and ends Wednesday afternoon. Gold and silver traders today reckoned fresh on the FOMC members' minds will be today's better U.S. manufacturing data, which favors the monetary policy hawks. The FOMC is expected to raise the key U.S. interest rate by 0.25%. The European Central Bank also meets Thursday. The ECB is also expected to raise its main interest rate by a quarter-point. Also, on Friday comes the U.S. employment situation report from the Labor Department. Corporate earnings reports continue to flow out this week, including Apple's results.

S&P 500 will crash 20% as 'panic' sets in and gold hits $2,300 in 2023, Fed will cause 'more tremors' in banking sector – Gareth Soloway

Global stock markets were mostly higher overnight. Some European markets were closed for a holiday. U.S. stock indexes are mixed at midday. The U.S. stock index bulls had a good week last week, including the S&P 500 and Nasdaq indexes on Friday closing at technically bullish weekly and monthly high closes.

The key outside markets today see the U.S. dollar index solidly higher. Nymex crude oil prices are lower and trading around $75.50 a barrel. The benchmark 10-year U.S. Treasury note yield is presently fetching 3.551% and up today. These three markets were daily bearish elements for the gold and silver markets.

Technically, June gold futures bulls have the firm overall near-term technical advantage. However, a price uptrend on the daily bar chart has been negated. Bulls' next upside price objective is to produce a close above solid resistance at the April high of $2,063.40. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the April low of $1,965.90. First resistance is seen at $2,000.00 and then at today's high of $2,015.40. First support is seen at $1,980.90 and then at $1,965.90. Wyckoff's Market Rating: 7.0

July silver futures bulls have the firm overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at the April high of $26.435. The next downside price objective for the bears is closing prices below solid support at $23.00. First resistance is seen at $25.80 and then at $26.00. Next support is seen at $25.00 and then at last week's low of $24.735. Wyckoff's Market Rating: 7.0.

July N.Y. copper closed up 495 points at 394.00 cents today. Prices closed near mid-range. The copper bulls and bears are on a level overall near-term technical playing field. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the April high of 418.65 cents. The next downside price objective for the bears is closing prices below solid technical support at the January low of 372.45 cents. First resistance is seen at today's high of 400.50 cents and then at 405.00 cents. First support is seen at today's low of 387.05 cents and then at the April low of 381.65 cents. Wyckoff's Market Rating: 5.0.

Jim Wyckoff

For Kitco News

Time to Buy Gold and Silver

David

Mastercard launches Crypto Credential for a more secure, verified blockchain experience

Mastercard has announced the launch of Crypto Credential in an effort to establish a set of common standards and infrastructure that will help attest trusted interactions among consumers and businesses using blockchain networks.

According to the announcement posted on Friday, Crypto Credential is being created to provide a way for trusted, compliant and verifiable interactions to take place on public blockchain networks in order to bring more legitimacy to the blockchain industry.

“With Mastercard Crypto Credential, we can help ensure that those interested in interacting across Web3 environments are meeting defined standards for the types of activities they’d like to pursue,” the press release said. “Mastercard Crypto Credential will not only define verification standards and levels, but also provide necessary enabling technology to help bring more use cases to life.”

One benefit of the new service is that it allows for the creation of easy-to-remember aliases to help consumers share wallet addresses with one another. This helps to improve the consumer experience and reduces the potential for errors.

Crypto Credential will also “bring richer information to blockchain transactions through metadata, helping to define attributes of a wallet to help ensure that transactions are completed as intended,” Mastercard said.

The service will utilize CipherTrace’s suite of services to verify addresses and support Travel Rule compliance for cross-border transactions. Mastercard has partnered with crypto wallet providers Bit2Me, Lirium, Mercado Bitcoin and Uphold to enable transfers between the U.S and Latin America and the Caribbean corridors.

The payments firm has also joined forces with ith public blockchain network organizations Aptos Labs, Ava Labs, Polygon and The Solana Foundation to help introduce the application to developers in their ecosystems. “Together, we’ll collaborate to enhance verification in NFTs, ticketing, enterprise and other payments solutions,” Mastercard said.

This new service is just the latest cryptocurrency-related endeavor to be announced by Mastercard as the firm has been one of the most active multinational financial service providers in the crypto space in recent years.

In October, the firm announced the launch of ‘Crypto Secure’, a new crypto service desk focused on helping banks identify and prevent fraud from occurring on crypto merchant platforms. Later that month, the company launched ‘Crypto Source’, a new program that enables financial institutions to begin offering secure crypto trading services to their customers.

In January, Mastercard partnered with Polygon to launch the Web3-based Mastercard Artist Accelerator program, which is designed to help up-and-coming artists get established and connect with fans in the Web3 arena.

Jordan Finneseth

For Kitco News

Time to Buy Gold and Silver

David