Gold prices bounced back from their lowest level in more than two months on Tuesday as the dollar backtracked from highs, while lingering concerns over U.S. debt ceiling negotiations has kept investors on edge and rekindled demand for safe-haven bullion.
Spot gold rose 0.8% to $1,958.79 per ounce after hitting its lowest since March 17. U.S. gold futures were up 0.7% to $1,976.7
The dollar eased 0.2% from its 10-week highs, making bullion cheaper for holders of other currencies.
“The dollar is turning around, thereby supporting gold which was already attracting bids after managing to hold support around $1,933,” said Ole Hansen, head of commodity strategy at Saxo Bank.
U.S. President Joe Biden said on Monday he felt good about the prospects for passage by Congress of the debt ceiling deal, yet a handful of hard-right Republican lawmakers said they would oppose a deal, highlighting risks before the limit is reached in a few days.
Hansen noted that while earlier worries on the U.S. debt ceiling deal had supported prices, the repricing of the Fed’s rate hike path was keeping gold pressured.
Markets are now pricing in a 59.4% chance of the U.S. Fed raising rates at its June 13-14 meeting.
“While the Fed may be slow to cut rates as inflation remains a concern, a deteriorating economy will ultimately see rate cuts and that could remove support for the dollar and help to lift the gold price,” Heraeus analysts said in a note.
Gold tends to lose its appeal in a high-interest rate environment.
“We have seen ETF holdings utilizing this recent setback (in prices) to add length to the position and that tells me that the short-term outlook is challenged, but the longer-term outlook remains supportive,” Hansen said.