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'Gold is the best hedge': The catalyst to take gold price higher is debt ceiling debate, says RBC
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(Kitco News) Even though much attention is being given to whether the Federal Reserve will pause in June, the debt ceiling debate is the primary near-term catalyst that could move prices higher, said RBC.
"It is indeed monetary policy and the path of the Fed that will determine the medium- and long-term price outcomes for gold, but heightening anxiety about the debt ceiling is the near-term catalyst to watch," RBC Capital Markets senior associate Allison Enck said in a note.
Aside from the debt cap issue, gold is likely to remain range-bound. "The main near-term potential catalyst for a move higher lies in the debt ceiling debate," Enck said. "Even assuming a deal is eventually reached, we wouldn't disregard potential growing financial angst as the deadline approaches."
Gold would move higher because it is one of the few assets to see additional flows as investors look for a hedge.
"While an eventual resolution would mean such flows are short-lived (and may eventually normalize closer to our high scenario at least), in the near term, we believe gold looks like the best hedge in the more immediate offing," Enck noted.
The gold market fell more than $100 since testing record highs at the start of May. Dragging price down have been a more resilient U.S. macro data, which has pushed the dollar higher and pared back year-end rate cut expectations.
At the time of writing, June Comex gold futures were trading at $1,974.60, down 0.35% on the day.
The June 1 deadline, when the U.S. could run out of money to pay its bills, referred to as the X-date, is just ten days away.
But injecting some optimism into the situation at the start of the week is the upcoming Monday meeting between U.S. President Joe Biden and House Speaker Kevin McCarthy to discuss raising the $31.4 trillion debt limit.
There has been some uncertainty in the last few days, with talks pausing on Friday but then resuming Sunday between the leaders' hand-picked negotiators.
Over the weekend, Biden called McCarthy from Air Force One. McCarthy told reporters the call was "productive," and Biden stated that "it went well."
U.S. Treasury Secretary Janet Yellen added to the urgency of the situation Sunday, stating that it is unlikely the U.S. will be able to pay its bills by mid-June if the debt ceiling is not raised.
"Well, there's always uncertainty about tax receipts and spending," Yellen told NBC's 'Meet the Press' on Sunday. "And so it's hard to be absolutely certain about this, but my assessment is that the odds of reaching June 15 while being able to pay all of our bills is quite low."
This is the last full week where Democrats and Republics have a chance to iron out a deal and have enough time to pass it in the Senate and House before June 1.
