Gold slips as dollar advances with US debt talks dragging on

By Deep Kaushik Vakil

(Reuters) – Gold slipped on Wednesday as the dollar firmed, cutting some safe-haven flows into bullion from the looming risk of a U.S. debt default, while investors took stock of the minutes of the Federal Reserve’s May meeting.

Spot gold was down 0.6% at $1,962.92 per ounce by 2:25 p.m. EDT (1825 GMT), after earlier rising as much as 0.5%. U.S. gold futures settled 0.5% lower at $1,964.60.

The dollar index hit a fresh two-month high, weighing on demand for greenback-priced bullion. [USD/]

U.S. Treasury Secretary Janet Yellen maintained early June as a debt ceiling default deadline, while negotiators for Democratic President Joe Biden and top congressional Republican Kevin McCarthy reconvened to try to close a deal.

“Overwhelmingly, the debt ceiling headlines are at play,” said Daniel Ghali, commodity strategist at TD Securities.

Gold gained in the previous session “despite headwinds from a rising broad dollar, which reveals notable demand behind the scenes”, Ghali added.

Wall Street’s main indexes fell as the debt ceiling impasse kept investors on edge. [.N]

If regional U.S. banking troubles were to subside and agreement to be reached over the debt ceiling, gold could fall further, said Edward Gardner, commodities economist at Capital Economics.

Fed officials “generally agreed” last month that the need for further rate increases “had become less certain”, according to minutes of the May 2-3 meeting released on Wednesday.

Fed governor Christopher Waller said that while skipping an interest rate hike at the meeting next month may be possible, an end to the hiking campaign isn’t likely.

Bullion was hovering just above 1-1/2 month lows touched last week, as higher interest rates tend to increase the opportunity cost of holding non-interest-bearing gold.

Spot silver shed 1.4% to $23.10 per ounce, while platinum fell 2.2% to $1,024.59. Palladium dropped 2.6% to a near two-month low of $1,408.00.

(Reporting by Deep Vakil and Seher Dareen in Bengaluru; Editing by Kirsten Donovan, Christina Fincher, Rashmi Aich, Shounak Dasgupta and Jan Harvey)