Gold prices decline amid US debt ceiling concerns and strong dollar

LONDON (May 22) Gold prices continued their downward trajectory on Tuesday, as the US debt ceiling issue remained at the forefront of investors' minds. Spot gold XAUSD slipped to $1,960.45 an ounce by 08:00 GMT, reflecting the metal's struggle in the face of a resilient dollar.

The strength of the greenback in recent sessions has weighed heavily on gold, as market participants anticipate that US interest rates will remain elevated for a longer period. Fed Fund futures indicate that while traders expect a pause in the Federal Reserve's rate hike cycle in June, they are also reducing their expectations for any rate cuts this year. The Fed itself has downplayed the likelihood of a rate cut in the current year.

The outlook for high US interest rates presents a challenge for non-yielding assets like metals, as it increases the opportunity cost of investing in them. This trend has taken a toll on metal prices throughout 2022, particularly as US interest rates experienced a notable surge.

As the week progresses, attention will turn to additional US economic indicators, as well as the release of the minutes from the Fed's May meeting on Wednesday. Investors will closely monitor any signals suggesting that the central bank intends to pause its rate hike cycle in June.

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