The price of gold steadied below $2,000 per ounce on Wednesday following a drop of over 1% in the previous trading session. Prices remained under pressure for the second consecutive session as the dollar regained strength amidst upbeat mood on negotiations over the US debt ceiling and the Federal Reserve’s monetary policy.
Gold took a deeper pullback
The price of gold was negatively affected by the rise of the U.S. dollar and Treasury yields, which coincided with ongoing talks about raising the U.S. debt ceiling before the deadline on June 1st.
Gold XAUUSD is 0.14% down, trading at $1985 an ounce, after falling below the key $2000 level on Tuesday.
In addition to the hawkish speculations of the Federal Reserve adopting a more strict monetary policy to combat inflation, as multiple policymakers have recently stated that inflation is still too high. This could push the Fed to continue raising interest rates. On Friday, Fed Chair Jerome Powell will speak and may provide additional guidance on monetary policy.
In the past few sessions, there has been some profit taking of gold after it reached record highs earlier this month. However, recent losses caused the value of bullion to drop below the significant support level of $2,000 per ounce.
Check Gold Outlook 2023
As interest rates in the United States are expected to remain elevated for a prolonged period, the appeal of holding non-interest-paying assets like gold may decline. This could add further pressure on gold prices in the short run. However, concerns of a potential U.S. recession this year will keep the demand for safe haven assets intact which may preserve the value of gold relatively stable at high levels.
Preliminary readings from CME Group showed that the open interest in gold futures markets decreased by approximately 14.2K contracts on Tuesday. However, the volume increased by approximately 52.3K contracts, reversing two consecutive daily declines.
Analysts at TDS stated that although gold prices are currently close to their all-time high, the positioning set-up does not suggest that we have reached the peak of recent upward trend.
The industrial metals dropped significantly this week due to China’s lower-than-anticipated economic performance. Data revealed that Chinese industrial production and retail sales grew less than expected in April.
The recent readings have raised worries about China’s sluggish economic recovery, which may lead to decreased demand for commodities this year.
On the other hand, other precious metals remained steady on Wednesday. Copper and Platinum rose while Silver was 0.34% down.
Upbeat debt ceiling negotiations lifts the USD
Late on Tuesday, President Joe Biden and House Speaker Kevin McCarthy made progress towards reaching a deal, but they did not come to a final agreement.
Biden warned that a default could cause a recession for the economy. However, investors are worried about the negative global impact and are therefore considering the US dollar as a safe haven asset.
Strong US consumer spending data and hawkish comments from Fed officials contributed to the rise of the dollar recently.
The US Dollar Index (DXY), which gauges the greenback against six major currencies, is 0.34% up at 102.90.
Chicago Fed President Austan Goolsbee stated that discussing rate cuts at this stage is premature. In contrast, Cleveland Fed President Loretta Mester expressed that the central bank cannot maintain the current interest rates due to persistent inflation.
The solid increase in April consumer spending and comments from Fed officials have ruled out the potential of cutting U.S. interest rate soon.
The euro dropped to a six-week low against the greenback, down by 0.26% at 1.08313. The New Zealand dollar (NZD), however, remained relatively stable at $0.6252 as the best performing major currency against the U.S. dollar. NZD traders are anticipating a 0.25% rate hike from RBNZ next week, with the possibility of another increase coming after.