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$Gold - main 2308(GCmain)$ $SPDR Gold Shares(GLD)$

Gold prices have dropped $100 over the past month, correcting from $2,056 an ounce in early May to a low of $1,940 last week.

For the third time since 2020, $Gold - main 2308(GCmain)$ prices climbed above $2,000 an ounce before retreating.

The price of precious metals has still risen sharply in the past six months. Tigers may want to know what caused the correction of gold prices and what will happen to gold prices next?

Overall, leading factors includes a calming banking crisis, progress in U.S. debt-ceiling talks, a stronger U.S. dollar, and a recent pick-up in inflation indicators.

Below are several key factors and detailed analysis of where gold prices may go in the future.

1. Debt Ceiling Negotiations:

It now appears that the U.S. government has reached a deal to raise the debt ceiling ahead of the June 1 deadline. (Raising the debt ceiling is the government's legal mandate to increase the total amount of outstanding debt and allow it to issue further debt). There is no default expectation in the market, but it is expected that the negotiations may continue until the deadline, and investors' interest in gold will increase as the deadline approaches.

2.Yields Curve Inversion:

The U.S. Treasury yield curve is currently inverted, meaning short-term rates are higher than long-term rates. Every yield curve inversion since World War II has been followed by a recession six to 18 months later. In fact, the U.S. two-year and ten-year yields had already inverted in July 2022 (10 months ago), and the spread has widened further in the past month (the rise in the two-year yield faster than ten-year yields). Gold prices tend to rise when the yield curve inverts.

3. Interest Rates and Dollars:

Rising interest rates are tied to a stronger dollar and lower gold prices. When real interest rates (declared or nominal rates minus inflation) rise, investors typically turn to higher-returning assets like bonds and stocks. And when real interest rates fall, the price of gold rises because it is more attractive relative to other investments. Now, U.S. real interest rates have recently turned positive after being negative for the past two years.

4. Inflation:

Inflation has been falling after peaking in June 2022. During periods of high inflation, investors turn to gold as a safe-haven investment, as high inflation usually means negative real interest rates. And higher inflation gives the Federal Reserve more room to raise interest rates at its upcoming meeting.

5. Economic Recession:

According to the Conference Board, the chance of a U.S. recession within the next 12 months remains close to 99%. Even with higher-than-expected U.S. GDP growth in late 2022 and early 2023 on the back of better-than-expected consumer spending, the Conference Board continues to forecast three consecutive quarters of declining GDP growth beginning in the second quarter of 2023. Gold prices typically rise during recessions as investors hedge against falling stock markets, and bullion is a favorite among investors in an environment of falling interest rates.

Summarize:

Three of these indicators (debt ceiling, rising interest rates, and falling inflation) tell us that gold prices have peaked in the short term. And to see prices continue to rise would require a recession-induced environment of falling interest rates. And these indicators seem to be telling us that it will happen later this year or early next year.