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Gold hits 2-month low on US debt talks progress, rate hike bets

May 25, 2023By Reuters

May 25 (Reuters) – Gold slid to its lowest in two months on Thursday as optimism around the US debt ceiling talks lowered safe-haven demand for bullion and robust economic data fueled bets of another rate hike by the Federal Reserve.

Spot gold was down 0.8% at USD 1,941.85 per ounce by 2:47 p.m. EDT (1847 GMT), having hit its lowest since March 22. US gold futures settled down 1.1% at USD 1,943.70.

US President Joe Biden and top congressional Republican Kevin McCarthy appeared to be nearing a deal to cut spending and raise the debt ceiling.

“It’s a one-two punch for gold … if a deal is done over the weekend, then that will remove the biggest risk off the table,” said Edward Moya, senior market analyst at OANDA.

Gold extended losses after official data showed new US jobless claims rose moderately last week, indicating persistent labor market strength, and revised up the estimated GDP growth last quarter.

“A rather impressive round of economic data suggests this economy is still showing so much resilience … the argument for possibly delivering another rate hike is gaining steam here,” Moya added.

Traders looked to the Fed-favored inflation gauge, core personal consumption expenditures index, due Friday.

Markets now priced in a 50-50 chance of a 25-basis-point hike in June, seeing cuts no sooner than September, according to the CME FedWatch tool.

Gold, a non-yielding asset, tends to lose appeal in a high-interest rate environment.

The dollar climbed to its highest since mid-March, making gold less attractive for overseas buyers, while benchmark Treasury yields were near highs seen on March 13.

Gold was “really viewing things through the lens of the dollar,” said independent analyst Ross Norman.

Spot silver eased 1.4% to a two-month low of USD 22.75 per ounce. Platinum fell 0.2% to USD 1,021.68, while palladium rose 0.1% to USD 1,416.39.

(Reporting by Deep Vakil and Seher Dareen in Bengaluru; Editing by Varun H K, Kirsten Donovan, Shinjini Ganguli, Nick Macfie and Shilpi Majumdar)


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