Gold Price Forecast: Debt-Ceiling Progress, Strong Dollar Weigh

Gold Highlights

• Gold prices dip due to strong dollar and positive debt-ceiling talks
• Progress on debt ceiling reduces uncertainty, dampens gold sentiment
• Stronger US macro data raises rate hike concerns, pressuring gold

Gold Overview

Gold prices dipped on Thursday due to the strength of the dollar and decreased demand for the safe-haven metal amid positive developments in U.S. debt-ceiling negotiations. The dollar index remained close to its previous session’s seven-week high, making gold less accessible for foreign investors. President Joe Biden and leading U.S. congressional Republican Kevin McCarthy collaborated to prevent a harmful debt default, thereby supporting the continued strength of the U.S. dollar.

At 08:28 GMT, Gold (XAU) is trading $1975.07, down $7.74 or -0.39%. On Wednesday, the SPDR Gold Shares ETF (GLD) settled at $184.25, down $0.62 or -0.34%.

Pressured by Debt Ceiling Progress

Gold prices faced downward pressure as progress was made on the debt ceiling issue. This is reducing market uncertainty and leading to a modest boost in sentiment. U.S. President Joe Biden and top congressional Republican Kevin McCarthy expressed their commitment to swiftly reach an agreement to raise the federal government’s $31.4 trillion debt ceiling and prevent a financially disastrous default. They agreed to engage in direct negotiations after a prolonged standoff. Although the positive meeting helped alleviate concerns about a potential unprecedented default, cautiousness persisted and tempered risk appetite.

High US Interest Rates Weigh

Better-than-anticipated U.S. macroeconomic data raises concerns about potential higher interest rates, subsequently impacting gold. Moreover, the rise in Treasury yields strengthens the U.S. dollar. Additionally, market indicators, including the CME FedWatch tool, indicate a 69.3% probability of the Federal Reserve maintaining unchanged interest rates in June. Consequently, traders have adjusted their expectations, diminishing the anticipation of a future rate cut.

Rangebound, with Downside Bias

While gold is expected to trade within the range of $1,956 to $2,003 in the upcoming two weeks, the overall trend remains relatively weak. This is attributed to the growing optimism surrounding the debt ceiling negotiations, which is anticipated to exert downward pressure on gold prices.

Technical Analysis

Gold (XAU) is trading on the bearish side of the pivot at $2002.54, putting it in a weak position.

The failure to hold $2002.54 should lead to increased selling pressure.  Look for the selling to possibly extend into $1956.30 (S1) over the near-term if this generates enough downside momentum.

Regaining $2002.54 will indicate the return of buyers. The first upside target is (R1) at $2035.78. Overtaking this level will indicate the buying is getting stronger with the next major target (R2) at $2082.03.