Gold struggles for direction with US debt talks in standstill

Gold prices were flat on Monday (May 22), as traders looked for more clarity around the US debt ceiling negotiations and the Federal Reserve’s interest rate path.

Spot gold was steady at US$1,978.32 per ounce by 0843 GMT, while US gold futures were down 0.2 per cent to US$1,978.10.

In the near term, everyone is looking at the debt ceiling talks, otherwise the next catalyst for gold could be a dovish sounding Fed guidance, UBS analyst Giovanni Staunovo said.

US President Joe Biden and House Republican Speaker Kevin McCarthy will meet later in the day to discuss the debt ceiling, which will be closely watched to see if a resolution is reached after negotiations broke off on Friday.

“Gold is taking more of a cue from debt ceiling developments (or lack of) over the Fed meeting, because a US default could occur before the Fed’s next meet, and it would surely have an impact on the Fed’s decision,” City Index senior market analyst Matt Simpson said.

Investors are also hunting for clues on future US central bank interest rate strategy after Fed chair Jerome Powell hinted at a pause in June policy.

The minutes of the latest US Federal Open Market Committee meeting are due on May 24. Markets are pricing in a 87.3 per cent chance of rates being held steady next month, the CME FedWatch tool showed.

However, Lukman Otunuga, senior research analyst at FXTM, said US-debt limit talks might overshadow most key economic reports this week, including the Fed minutes.

“In the meantime, gold remains in a choppy range, trading back above the US$1,970 level. If prices slip back under US$1,970, gold could test US$1,945 and US$1,900.”

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Gold inches higher on US debt ceiling talks, banking sector uncertainty

Gold tends to lose appeal in a high-rate environment.

Spot silver fell 0.2 per cent to US$23.79 per ounce, while platinum rose 0.8 per cent to US$1,071.27. Palladium was steady at US$1,512.37.