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Gold price at $2100 after default or US spending review?
Despite a slight increase, the price of gold still remains below $2,000 an ounce, not yet enough to reverse the three-week downward trend.
Concerns that US debts will not be able to be paid by early June if the debt ceiling is not immediately raised are being felt strongly in markets such as gold and silver.
The fear that a default could occur is supporting the strength of the US currency.
Warnings have been sounded loud and clear by US banks.
Some mid-scale institutions have seen sharp declines in share and deposit prices over the past week, a sign that things aren't going the right way.
The US dollar rose further on Friday after data on US consumer sentiment fell, raising concerns about the performance of the economy.
The stalemate on the US government debt ceiling issue raises the possibility of a default by June 1st.
In this situation of extreme uncertainty, people are turning to the dollar as a safe haven asset.
If US macro data suddenly swings from optimism to pessimism, the risk of a recession could resurface, and markets would expect rate cuts from the Federal Reserve in the second half of 2023.
Currently, the probability that the Fed will keep rates unchanged in June is very high (82%), with a 33% chance that it will decide to cut them in July.
In times of crisis, the dollar can be a safe currency, and it is likely that any bad announcements will have a positive effect on it.
I believe that increased concern over the US debt crisis will lead to a rise in the price of gold as investors prepare for possible chaos in the financial markets.
The possibility of a series of rate cuts in the US before the end of the year is fueling demand for precious metals. That support should have a positive effect on the value of non-interest-bearing gold reserves.
Gold is more of a safe asset than ever due to the unstable political situation in Washington, the Federal Reserve's approach to easing rates, rising geopolitical tensions, persistent concerns over the health of US financial institutions, and fears of an economic slowdown.
Technical signals show a decline in prices that are below the fast-moving average.
If they were to close above the moving average, I might decide to buy with a target in the $2100 area.
To ensure protection in the event that an agreement on the debt ceiling cannot be reached, investing in gold is undoubtedly the best choice.
If a debt deal fails to materialize, the US will default; if there is an agreement, it will contain heavy spending cuts that will lead the US state into recession.
My forecasting model shows that the price of gold will hit $2,100 in the next quarter.
Disclaimer: The information and content provided on this site should not be considered as an invitation to invest in the financial markets. The Content is a personal opinion of Dr. Antonio Ferlito.
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