© Reuters.
Investing.com – Gold prices fell on Monday, extending three weeks of losses as strong inflation readings boosted the dollar and raised expectations of an interest rate hike by the Federal Reserve, while fears of a U.S. debt default eased.
US lawmakers said over the weekend that they had reached an agreement “in principle” to raise the US spending limit by two years, which could avert a default before the June deadline.
The news helped ease some fears of widespread economic turmoil stemming from defaults in the United States, spurring gains in risk-driven assets. This, in turn, has affected gold, which usually acts as a safe haven in times of economic stress.
The yellow metal also faced more pressure from stronger amid renewed focus on the Federal Reserve, as data on Friday showed that the Fed – the Fed’s preferred measure of inflation – rose more than expected in April, pointing to steady inflationary conditions in the country.
It fell 0.2% to $1,942.24 an ounce, while the August expiry price fell 0.2% to $1,959.85 an ounce by 20:12 ET (00:12 GMT). Both instruments traded near two-month lows after falling from record highs hit earlier in May.
The dollar consolidated further from two-month highs hit last week on Monday, putting pressure on metals prices as markets began to prepare for the Fed’s 25 basis point hike in June. Markets appear to be pricing in around a 65% chance of a rally in June, which is a stark reversal from the sentiment seen last week.
The prospect of higher interest rates bodes badly for non-yielding assets such as gold, since it increases the opportunity cost of holding such assets.
The Fed signaled a data-driven approach to future rate hikes during its May meeting. With inflation seemingly picking up into April, the central bank may now consider further increases.
Easing economic risks from a potential debt default also gives the central bank more room to continue raising interest rates, presenting a subdued outlook for gold in the near term.
Other precious metals moved in a flat to lower range on Monday. It fell 0.1 percent, while it rose 0.2 percent.
Among industrial metals, copper prices hovered above seven-month lows after posting a sharp rebound over the past two sessions. But the outlook for the red metal remained bleak amid deteriorating global manufacturing conditions, as well as the prospect of weak demand in the main market in China.
It was steady at $3.6733 a pound.