Gold price has gathered recovery momentum and advanced toward $1,980 on Wednesday. The benchmark 10-year US Treasury bond yield stays in negative territory below 3.7% following Tuesday’s decline, helping XAU/USD stretch higher.
Gold price struggles to capitalize on its modest intraday uptick and attracts some selling near the $1,980 region during the early European session on Wednesday. The XAU/USD drops back closer to the $1,970 level in the last hour and for now, seems to have stalled the overnight bounce from the vicinity of the monthly low touched last week.
The recent hawkish remarks by several Federal Reserve (Fed) officials raised the possibility of further rate hikes, with markets now pricing in a 30% chance of another 25 basis points (bps) lift-off in June. This turns out to be a key factor acting as a headwind for the non-yielding Gold price.
Hence, the market focus will remain glued to the release of the Federal Open Market Committee (FOMC) meeting minutes, due later during the US session. Investors will look for clues about the future rate-hike path, which will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide a fresh directional impetus to the XAU/USD.
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In the meantime, the lack of progress in talks over increasing the United States (US) debt ceiling, along with worries about a global economic slowdown, could limit the downside for the safe-haven Gold price.
It is worth recalling that Representatives of President Joe Biden and congressional Republicans ended another round of debt ceiling negotiations on Tuesday without an agreement to raise the government’s $31.4 trillion borrowing limit. This raises fears of an unprecedented American debt default and weighs on investors’ sentiment. Apart from this, looming recession risks might further hold back bears from placing aggressive bets around the XAU/USD.
The market concerns resurfaced on Tuesday after the flash Eurozone PMIs showed that the overall business activity slowed slightly more than anticipated as the dominant services industry lost a little of its shine and the downturn in the manufacturing sector deepened in May. This comes on the back of dismal Chinese macro data released last week, which indicated that the world’s second-largest economy underperformed in May. This, in turn, warrants some caution before positioning for the resumption of the recent pullback from the all-time high. The upside potential, meanwhile, seems limited amid the underlying bullish sentiment surrounding the USD.
In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, holds steady near a two-month high touched on Tuesday amid firming expectations that the Fed will keep interest rates higher for longer. This might continue to undermine demand for the US Dollar-denominated Gold price ahead of the crucial FOMC meeting minutes. Traders will further take cues from the US debt ceiling negotiations, which, along with the US bond yields, will drive the USD demand. Apart from this, the broader risk sentiment might further contribute to producing short-term trading opportunities around the XAU/USD.
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