Gold Subdued as US Dollar, Yields Firm; Traders Await Inflation Data

A view shows ingots of 99.99 percent pure gold in a workroom during production at Krastsvetmet precious metals plant in the Siberian city of Krasnoyarsk, Russia, May 23, 2024.  REUTERS/Alexander Manzyuk
A view shows ingots of 99.99 percent pure gold in a workroom during production at Krastsvetmet precious metals plant in the Siberian city of Krasnoyarsk, Russia, May 23, 2024. REUTERS/Alexander Manzyuk
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Gold Subdued as US Dollar, Yields Firm; Traders Await Inflation Data

A view shows ingots of 99.99 percent pure gold in a workroom during production at Krastsvetmet precious metals plant in the Siberian city of Krasnoyarsk, Russia, May 23, 2024.  REUTERS/Alexander Manzyuk
A view shows ingots of 99.99 percent pure gold in a workroom during production at Krastsvetmet precious metals plant in the Siberian city of Krasnoyarsk, Russia, May 23, 2024. REUTERS/Alexander Manzyuk

Gold prices edged lower on Wednesday as the US dollar and Treasury yields held firm ahead of key inflation data, which could offer more clarity on the Federal Reserve's interest rate trajectory.
Spot gold eased 0.2% to $2,354.76 per ounce by 0711 GMT. Prices had hit an all-time high of $2,449.89 on May 20, said Reuters.
US gold futures fell 0.1% to $2,355.10.
The dollar held steady against its rivals, making gold less attractive for other currency holders, while benchmark US 10-year bond yields rose to multi-week peaks.
"Investors will try to book profit and prices are trading near $2,350. So, prices have not corrected but it's a kind of a healthy consolidation after a very sharp rally last Monday," said ANZ commodity strategist Soni Kumari.
"Investors will try to position themselves in gold because overall long-term fundamentals are looking pretty strong for gold at the moment."
The US core personal consumption expenditures (PCE) data, the Fed's preferred measure for inflation, is due on Friday.
"A softer US core PCE release would make the job easier for gold to reclaim the $2,400 level, given the possible rate-cut timing implications," said Tim Waterer, chief market analyst at KCM Trade in a note.
Traders currently pricing in about a 59% chance of a rate cut by November, according to the CME FedWatch Tool.
While gold is used as a hedge against inflation, rate hikes raise the opportunity cost of holding non-yielding bullion.
Spot silver rose 0.3% to $32.19, platinum was down 0.4% to $1,058.95 and palladium was unchanged at $973.02.
Meanwhile, BHP Group said it needed more time to engage with Anglo American, a week after the London-listed miner rejected BHP's 38.6 billion pounds ($49.20 billion) offer ahead of a final bid deadline later in the day.
The International Monetary Fund upgraded China's GDP growth forecasts for 2024 and 2025 after a "strong" first quarter. China is a key consumer of bullion and other industrial metals.



Germany's Coalition in Impasse Over 2025 Budget

FDP Finance Minister Christian Lindner (L), Greens Economy Minister Robert Habeck (C) and Chancellor Olaf Scholz (R) of the SPD are locked in a budget dispute - AFP
FDP Finance Minister Christian Lindner (L), Greens Economy Minister Robert Habeck (C) and Chancellor Olaf Scholz (R) of the SPD are locked in a budget dispute - AFP
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Germany's Coalition in Impasse Over 2025 Budget

FDP Finance Minister Christian Lindner (L), Greens Economy Minister Robert Habeck (C) and Chancellor Olaf Scholz (R) of the SPD are locked in a budget dispute - AFP
FDP Finance Minister Christian Lindner (L), Greens Economy Minister Robert Habeck (C) and Chancellor Olaf Scholz (R) of the SPD are locked in a budget dispute - AFP

The three parties in the German government are locked in a bitter dispute over the 2025 budget, with experts warning the stalemate could be the final straw for the uneasy coalition.

Chancellor Olaf Scholz's Social Democrats (SPD), the Greens and the liberal FDP, who came to power in 2021, have until July 3, the end of the current parliamentary term, to reach a compromise, AFP reported.

FDP Finance Minister Christian Lindner, a fiscal hawk, is demanding close to 30 billion euros ($32 billion) in savings -- which the Greens and SPD have baulked at.

The coalition has faced many rows in the past but some pundits believe this could be the one that finally blows the government apart.

"These talks will decide the coalition's continued presence in office," said the Sueddeutsche Zeitung daily this week.

While budget discussions have been difficult before, they have never lasted this long.

"It's much more difficult than usual," Jacques-Pierre Gougeon, an expert on German politics at the French Institute for International and Strategic Affairs, told AFP.

He pointed to a gloomy backdrop due to Germany's poor performance in recent times, with Europe's biggest economy hit hard by high inflation and a manufacturing slowdown.

According to the finance ministry, tax revenues for 2025 are set to be 11 billion euros lower than originally forecast.

A ruling by the country's top court in November that the coalition had contravened the constitutionally enshrined "debt brake", a self-imposed cap on annual borrowing, has also limited room for new spending.

In addition, all three parties are increasingly worried about their own levels of support after doing badly at this month's EU elections -- in which the opposition conservative CDU-CSU bloc came first, with the far-right AfD second.

A key sticking point in discussions centres on unemployment benefits.

Lindner wants to restrict the current payouts, which he believes are too expensive and do not provide enough of an incentive to get people to return to work.

But the SPD won't accept this. Improving benefits was central to the party's 2021 election campaign as they sought to win back support of lower-income voters.

"Politically, the Social Democrats cannot afford to give it up," said Gougeon.

There is also disagreement about any measures affecting diplomacy and defence, at a time when Germany is seeking to stand up for liberal, European values and overhaul its creaking military in the wake of Russia's invasion of Ukraine.

Defence Minister Boris Pistorius is calling for an increase in his ministry's budget, and for military spending not to be covered by the debt brake.

"It would be disastrous to have to say in a few years' time: we saved the debt brake at the expense of Ukraine and the European security order," said Foreign Minister Annalena Baerbock, from the Greens.

While calls have grown for the debt rules to be relaxed, Lindner and the FDP categorically refuse to countenance any changes.

Maintaining the brake is an "existential question" for the party, according to Gougeon.

Lindner did however promise on Wednesday not to push for any savings in defence.

Scholz, Lindner and Economy Minister Robert Habeck, from the Greens, are due to meet Sunday in an attempt to make progress.

The aim is to prevent "the budget crisis from turning into a crisis of confidence", which could lead to new elections, according to the left-leaning daily TAZ.

The parties may ultimately compromise as the alternative -- a collapse of the government -- will not be in their favour.

They "know that they would be swept aside if there were new elections, and will want to avoid them", said Gougeon.