“Gold Prices Fall on Officials’ Comments, US Debt Ceiling Controversy”

Investing.com – Gold prices fell significantly on Tuesday, weighed down by comments from officials about a continuation of the rally, while controversy over the US debt ceiling and the risk of default limited further losses in bullion.

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Gold and the dollar now

It fell by 0.7% to 2008 dollars an ounce.

While it fell by 0.6% to 2004 dollars an ounce.

On the other hand, the dollar index rose 0.1% to 102.377 points.

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gold when settling yesterday

Gold prices rose at the settlement of transactions, yesterday, Monday, due to the decline of the US dollar.

And the dollar turned lower, giving up its highest level in five weeks after data from the Federal Reserve in New York showed that the “Empire State” index fell by 42.6 points to -31.8 points in May, which is more than expectations for a decrease to -5 points, marking the largest decline since April. 2020.

Upon settlement, gold futures rose 0.1%, or $2.9, to $2,022.7 an ounce.

Trust is shaken

Matt Simpson, chief market analyst at City Index, said that members of the US Federal Reserve are underestimating the possibility of cutting interest rates this year, and this is pushing gold slightly lower, adding that gold’s failure to hold above the previous record level has shaken confidence.

Gold reached $2,072.19 this month, just below the record high of $2,072.49, after the Federal Reserve hinted that the rate hike cycle may be over.

However, US central bankers indicated on Monday that they would prefer interest rates to remain high, given that inflation remains well above target and the economy shows only temporary signs of weakness.

While gold is considered a hedge against inflation, rising interest rates weaken the attractiveness of non-yielding bullion.

Market participants have also been closely following developments in the debt ceiling debate, with President Joe Biden and Republican House Speaker Kevin McCarthy scheduled to meet at 19:00 GMT Tuesday for talks.

“Hopes remain that a resolution will be found while talks continue, but at the same time, the risk of default in the US remains,” Simpson added.

Statements by Fed members yesterday

Minneapolis Federal Reserve Bank President Neel Kashkari confirmed on Monday that inflation is “very high” and that the Fed has a long way to go before reaching its inflation target.

Kashkari further noted that the labor market is not as strong as it was nine months ago, but said it is still strong overall. “We shouldn’t be fooled by a few months of good data,” he added.

While Rafael Bostick, a president in Atlanta, said yesterday, Monday, that he does not expect any cuts this year even if there is a recession, because he does not see inflation decreasing as quickly as market participants think, indicating that if there are any developments, “we may have to to raise it.”

Bostick told CNBC that there is still a long way to go to bring inflation down to the Fed’s 2% target, though progress has been made in bringing it down toward that target.

Bostick asserted that if he is biased in a decision about interest rates, then they are biased towards increasing a little bit more rather than cutting rates.

His comments came as the Federal Reserve has raised interest rates 10 times since March 2022 in an effort to bring down inflation, which a year ago was at its highest since the early 1980s.

Also in an interview with CNBC on Monday, Chicago Fed President Austin Goolsby said they need to watch more data coming in, noting that there is still a lot to show for the effects of a rate hike.

He continued, “We have to be more aware, as we want to bring inflation back to the target track without starting a recession.”