Gold prices bounce as markets keep tabs on US debt talks

Gold prices edged up from two-month lows on Friday, helped by a dip in the U.S. dollar as traders assessed the progress of U.S. debt ceiling negotiations and the Federal Reserve’s rate hike path.

Spot gold rose 0.7% to $1,953.49 per ounce by 1142 GMT, while U.S. gold futures gained 0.5% to $1,952.80.

“Today’s moderating U.S. dollar has carved out some breathing space for bullion,” said Han Tan, chief market analyst at Exinity.

“The precious metal’s upside remains capped by the imminent prospects of a U.S. debt deal, coupled with the fact that markets have more room before fully pricing in yet another Fed rate hike by July.”

Bullion earlier slipped to its lowest since March 22 at $1,936.59 and is down 1.2% so far this week, on course for a third straight weekly fall. The dollar eased but remained on track for a third straight weekly gain.

U.S. President Joe Biden and top congressional Republican Kevin McCarthy are closing in on a deal, a U.S. official told Reuters.

The U.S. personal consumption expenditure (PCE) data, often referred to as the Federal Reserve’s favored inflation gauge, increased 0.4% month over month in April, higher than the 0.3% Dow Jones estimate. The reading potentially reinforces chances that interest rats could stay higher for longer. .

While some of the bullish sentiment in gold has faded, there’s a chance it could return, said Craig Erlam, senior market analyst at OANDA.

“We need supportive data as until now, it’s fallen short of what is needed to bring the end of the tightening cycle and open the door to rate cuts this year.”