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(Kitco News) The gold market has been hurt by upbeat economic data and persistently high inflation. As gold posted its third weekly loss, markets reset for another rate hike of 25 basis points in June after expectations of a pause were dashed.

Gold is set to drop $35 on the week, with June Comex gold futures last trading at $1,945.80 an ounce. Despite the selloff, gold is still up more than 6% year-to-date.

Macro data was the main driver weighing on gold late in the week, Bart Melek, global head of commodity strategy at TD Securities, told Kitco News.

“Durable goods counts, personal spending and PCE inflation measures were all broadly ahead of expectations,” Melek said. “Not only is inflation not slowing, but the Federal Reserve’s preferred measure of inflation, the core PCE price index, came in at 4.7 percent in April.”

Inflation near 5% is too high for the Fed to justify a pause in June, and the market is pricing it in. The latest market expectations see a 60% chance of upside at the June 13-14 meeting, says precious metals expert Gainesville Coins. Everett Millman told Kitco News.

“It’s a big reversal from previous estimates,” he said. “The speed of this kind of repricing is catching the attention of the gold market. Rapid changes in expectations lead to greater volatility.”

Additionally, the US dollar performed well and gold responded with a decline. “We think gold prices could be lower for most of the quarter and probably early in the third quarter,” Melek said. “The Market Misjudged the Fed’s Intentions.”

With the Fed zeroing in on inflation, not much will likely affect the central bank until the June meeting. Millman added that the drama of the debt ceiling debate is the only thing to watch closely, as any downgrade of the US credit rating will lead to safe-haven flows into gold.

Meanwhile, talks to raise the US government’s $31.4 trillion debt ceiling by June 1 hit some hurdles on Friday. Earlier, Democratic and Republican negotiators agreed to lift the debt ceiling for two years while limiting some spending.

“We’ve made progress,” Republican negotiator Garrett Graves told reporters. “I said two days ago that we’ve had some progress made on some key issues, but I want to be clear that we continue to have key issues that we haven’t bridged the gap in key work requirements.”

To view gold price levels

The next level of support for gold is $1,940 an ounce, Millman said. Below that, investors should watch $1,915 and $1,900.

Analysts do not rule out a drop to $1,900. “Unconfirmed support is around $1,900-$1,896,” Melek said.

“It’s too early to call gold bearish, although the precious metal has dropped above $125 after testing a record high a few weeks ago,” Frank Cholly, senior market strategist at RJO Futures, told Kitco News.

“The market is telling us that we will see another rate hike in June and possibly July. Gold doesn’t like that,” Choli said. “Somewhere between the $1,950-$1,925 range for August futures, traders will find value and the market will form a base before moving higher,” he said.

Data next week

Tuesday. US CBA Consumer Confidence

Wednesday. US JOLTs Jobs, Beige Book

Thursday. US Jobless Claims, US LDP Non-Farm Employment, US ISM Manufacturing PMI

Friday. US nonfarm payrolls

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