Gold holds above $3,300 as geopolitical risks, US debt woes mount

NEW YORK (May 21) Gold prices advance by over 0.50% and remain above the $3,300 mark as traders grow increasingly nervous about the United States (US) tax bill vote, along with escalating tensions in the Middle East. XAU/USD trades at $3,307 after bouncing off a daily low of $3,285.

The market mood remains downbeat as major US equity indices post losses while US Treasury bond yields rise. Market participants are awaiting the approval of President Trump’s tax-cut bill, which, according to the Congressional Budget Office (CBO), would add nearly $3.8 trillion to the US national debt.

The approval could underpin US stocks higher. However, the Greenback’s reaction is uncertain following Moody’s downgrade of US government debt last Friday, which triggered a USD sell-off, as depicted by the US Dollar Index (DXY).

The DXY, which tracks the performance of the American currency against six others, declines 0.52% to 99.49, a tailwind for bullion prices.

Heightened tensions in the Middle East boosted Gold prices, even though China-US tensions de-escalated as Beijing and Washington substantially reduced tariffs for 90 days to kick off negotiations to achieve a trade deal.

This week, traders will eye Fed speeches, Flash PMIs, housing data and Initial Jobless Claims.

Gold daily market movers: Gold rallies amid high US Treasury bond yields, weak US Dollar

• US Treasury bond yields are skyrocketing as the US 10-year Treasury note yield climbs nine and a half bps to 4.58%. Meanwhile, US real yields are also up nine and a half basis points at 2.229%.
• Bullion prices are rising due to concerns about the increase in US debt. Last week, Moody’s, the international rating agency, downgraded the US government rating from AAA to AA1, propelling Gold prices higher as the US Dollar got ditched and the US fiscal position worsened.
• On Tuesday, Federal Reserve (Fed) policymakers commented that monetary policy is appropriate, acknowledging that rising US import tariffs are inflation-prone and warrant holding rates.
• Gold price could extend its gains, boosted by geopolitical news. On Tuesday, CNN news, citing multiple sources, revealed that Israel is preparing to attack Iranian nuclear facilities.
• Data from the Chicago Board of Trade (CBOT) suggests that traders are pricing in 48.5 basis points of easing towards the end of the year.

FXStreet