GOLD Price Reacts to US Treasury Yields and Debt Ceiling Concern

DAY_PROFITS Updated   
OANDA:XAUUSD   Gold Spot / U.S. Dollar
Gold price has shown improvement as US Treasury bond yields retreat, driven by escalating concerns over the US debt ceiling. The 10-year and two-year Treasury bond yields have pulled back from their recent highs in early March.

The lack of progress in negotiations to address the US debt ceiling expiration, coupled with fears of a potential catastrophic default, has weighed on market sentiment. Despite this, US House Speaker Kevin McCarthy remains optimistic about reaching an agreement before June 01, although no deal has been reached yet. The US Treasury has explored options to delay payment demands, adding to the hopes of avoiding a default.

The optimism expressed by US decision-makers in avoiding a default has kept gold buyers positive, despite the prevailing challenges to market sentiment. Wall Street benchmarks have seen declines, but the S&P 500 Futures have struggled to find a clear direction, experiencing modest gains recently.

While the cautious mood surrounding the US default conditions has allowed gold price to recover from short-term key support, upbeat US data and hawkish Federal Reserve (Fed) expectations have enticed gold sellers. Preliminary figures for the May monthly PMIs showed growth in the US services sector outpacing manufacturing, leading to the Composite PMI reaching its highest level in a year. However, the US S&P Global Manufacturing PMI fell short of market forecasts, while the Services PMI surpassed expectations. These positive data points, along with comments from Fed officials advocating for higher interest rates due to inflation concerns, have fueled expectations of a Fed rate increase in June. This has supported the US dollar, despite the retreat in US Treasury bond yields, posing challenges for gold buyers.

The upcoming release of the FOMC Minutes, along with developments in US debt ceiling negotiations and US-China tensions, will be key factors influencing the direction of the XAU/USD pair. The FOMC Minutes could potentially strengthen the US dollar further if they provide an upbeat perspective. However, if the minutes present a pessimistic outlook, bond yields could decline, posing a challenge to the current bullish outlook.
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