Gold fell to a two month low on Thursday as optimism surrounding the US debt ceiling talks dampened demand for the precious metal and robust economic data boosted bets on further rate hikes by the Federal Reserve.
Spot gold was down 0.6% at $1,945.09 an ounce by 11:56 a.m. EDT (1556 GMT), its lowest since March 22. U.S. gold futures were down nearly 1% at $1,945.40.
US President Joe Biden and top Republican lawmaker Kevin McCarthy are nearing an agreement on the US debt ceiling, according to a person familiar with the talks.
“It’s a 1-2 punch for gold … if the deal goes ahead over the weekend, it takes the biggest risk off the table,” said Edward Moya, chief market analyst at OANDA.
Gold extended losses after official data showed new U.S. jobless claims rose slightly last week, indicating continued strength in the labor market, and revised up estimates for last quarter’s GDP growth.
“A fairly impressive round of economic data suggests that this economy is still showing so much resilience … the case for a possible further rate hike is gaining strength here,” Moya added. Traders looked to the Fed’s favored gauge of inflation, the core personal consumption expenditures (PCE) index, due out on Friday.
Markets now see a 48% chance of a 25 basis point hike in June, with no cut until September, according to CME’s FedWatch tool. Gold, a non-yielding asset, tends to lose its appeal in a high interest rate environment.
The dollar climbed to its highest level since mid-March, making gold less attractive to overseas buyers, while benchmark government bond yields were near their March 13 highs.
Gold was “really looking at things through the lens of the dollar,” said independent analyst Ross Norman. Spot silver eased 1.1% to $22.83 an ounce, while palladium also fell 1.1% to $1,431.20, both at two-month lows. Platinum was mostly unchanged at $1,023.37.
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