Gold prices could see some heightened volatility over the coming week due to US debt limit negotiations, the Fed minutes and key US economic data.

The past few days have certainly been rough for the precious metal with prices heading for their biggest weekly drop since February.

Before we take a deep dive into what factors may influence gold in the week ahead, here is a list of key economic reports and events to keep a close eye on:

Monday, May 22

• CNY: China loan prime rates
• EUR: Eurozone consumer confidence
• USD: Fed speeches

Tuesday, May 23

• EUR: Eurozone S&P Global Eurozone Manufacturing & Services PMI
• GBP: S&P Global/ CIPS UK Manufacturing PMI
• USD: US new home sales, Dallas Fed President Lorie Logan speech

Wednesday, May 24

• NZD: Reserve Bank of New Zealand rate decision
• EUR: Germany May IFO business climate
• GBP: UK April CPI, Bank of England Governor Andrew Bailey speech
• USD: Fed minutes

Thursday, May 25

• EUR: Germany Q1 GDP (final)
• USD: US initial jobless claims, Q1 GDP Annualised QoQ (second)

Friday, May 26

• AUD: Australia April retail sales
• JPY: Japan May Tokyo CPI
• USD: US April PCE report, University of Michigan consumer sentiment   

Now, here are 4 reasons why we’re keeping a close eye on Gold:

1. US Debt limit negotiations

The US Debt limit saga remains a hot topic that continues to influence global market sentiment.

To be clear, markets are not expecting the United States to default with traders pricing a less than 10% chance of it happening. Recent reports suggest that US President Joe Biden and top congressional Republican Kevin McCarthy are edging closer to a deal, with hopes rising over an agreement in principle by this weekend.

• Gold prices could tumble further if there is a breakthrough in negotiations with the jump in risk appetite and potential boost to the dollar dragging prices towards the $1900 level.
• Any hiccups in debt ceiling talks or further delays that shrink the window to strike a deal could send investors rushing back towards gold safe embrace. A wave of risk aversion and dollar weakness could push prices back above the psychological $2000 level.

Click here for more information about the US debt ceiling crisis.

2. Fed minutes and speeches

The minutes from the latest Federal Reserve policy meeting and speeches from Fed officials could offer more clues about the central bank’s next move.

After raising interest rates by 25 basis points in May, the Federal Reserve signalled a potential pause. The minutes could offer more insight into the thinking of policymakers and how united they were around the idea of 5.25% being the peak level of rates. Should the minutes strike an overall dovish note, this may reinforce expectations around the Fed being done with rate hikes with the next move being a cut. However, a divide between participants could leave room for future hikes, especially if economic data warrants. It may also be wise to watch out for speeches from Fed officials in the first half of the week.

• Gold bulls could fight back if the Fed minutes come across as dovish, with cautious Fed officials supporting any upside gains.
• Any whiff of hawks or mention of additional hikes in the minutes may drag gold prices, with hawkish speeches from Fed officials rubbing salt into the wound.

3. US April PCE report

The Fed’s preferred inflation gauge, the Core Personal Consumption Expenditure will be closely scrutinized by investors, especially after the central bank stressed that incoming data would influence monetary policy decisions.

Markets expect the April PCE report to show headline prices accelerated 0.3% month-over-month after March’s 0.1% increase while the core PCE deflator is forecast to rise 0.3%, same as March. The core personal consumption expenditures price index for projected to rise 4.5% year-over-year in April, down from the 4.6% seen in March.

Ultimately, more signs of cooling inflationary pressures could strengthen the argument around the Fed cutting interest rates late into the year. Traders are currently pricing in a 95% probability of a 25-basis point cut by the November Fed meeting, according to Fed funds futures.

4. Gold breaches key support

After securing a solid daily close below the $1970 level, bears have the freedom to run rampant in the week ahead.

Sustained weakness below this level could open a path back towards $1945 and $1900, respectively. If bulls are able to fight back and claw prices back above the psychological $2000 level, gold could test $2032 and $2045. Although the technicals favour further downside, the fundamentals could easily throw bulls a lifeline. Watch this space.