Despite the tentative debt ceiling deal in the US, there is a lot of argy bargy to come among Republicans in the US House of Representatives that could prove especially fertile ground for gold bulls this week.
Default is still an option for financial markets if the agreement is not turned into legislation and passed by the June 5 deadline for the US Treasury to run out of money.
This week could be a chance for traders to return the metal to its favoured role as a hedge in uncertain times.
Gold has gone missing as the debt crisis deepened, languishing for the past three weeks and dropping under the $US2,000 an ounce level.
And while gold edged higher on Friday as the US dollar steadied and bond yields rose, it was hardly a convincing performance.
Yields on 10-year bonds ended at 3.80% on Friday, up 12 points for the week while the yield on two-year bonds ended up nearly 30 points at 4.56%. The US dollar was easier on Friday after solid gains for much of the past week.
At the close, Comex gold for August delivery was up 80 US cents and settled at $US1,963.10 an ounce. That left gold down 1.7% for the week – its third weekly loss in a row.
While silver was up around 0.3% on Friday it still had another weak week, losing more than 2.3% to end at $US23.45 an ounce.
And Comex copper dropped 0.3% on Friday to end at $US3.67 a pound, a loss of 1.5% for the week but it had been as low as $US3.55 a pound midweek.
Investors though worried at the stronger than forecast April personal consumption expenditure index data released on Friday.
It’s the Federal Reserve’s preferred inflation measure and rose at more than expected 4.4% annual rate, up from 4.2% in March. Personal spending also rose 0.5% in April after being flat in March.
TD Securities global head of commodity strategy Bart Melek told Kitco News, “The durable goods number, personal spending, and the PCE inflation measures were all broadly above expectations.” “Not only is inflation not dropping, the Federal Reserve’s preferred inflation measure — the core PCE price index — went to 4.7% in April,” Melek added.
“Inflation near 5% is too high for the Fed to justify a pause in June, and the market is pricing that in. The latest market expectations see a 60% chance of a hike at the June 13-14 meeting,” Gainesville Coins precious metals expert Everett Millman told Kitco News.
Iron ore prices fell more than 3% to $US101.10 a tonne for 62% Fe fines, down from $US105.38 the previous Friday.
Friday’s close through was up around 5% from the six-month low of $US95.46 touched on Wednesday, according to data from the Singapore commodities market.
Watch for the manufacturing activity survey report on Wednesday to have an impact on iron ore and other commodity prices.
Coal prices were weaker – Newcastle thermal coal futures fell more than 13% over the week to $US1`37 a tonne for the July futures contract on thew Newcastle exchange. May (spot) coal was down 14% for the week at $US160 a tonne.