- There is optimism surrounding the US debt ceiling talks.
- Data showed moderate growth in new US jobless claims.
- There was an upward revision of the estimated US GDP growth in the last quarter.
Optimism surrounding the US debt ceiling talks and strong economic data exerted downward pressure on gold, pushing it to a two-month low on Thursday. Safe-haven demand for bullion diminished as US President Joe Biden and top congressional Republican Kevin McCarthy neared a potential agreement to cut spending and raise the debt ceiling. The progress in the negotiations was seen as a significant factor in reducing the prevailing risk.
Furthermore, gold’s decline was exacerbated by official data showing moderate growth in new US jobless claims. This indicates ongoing strength in the labor market. Additionally, there was a revision upwards of the estimated GDP growth in the last quarter.
The number of US citizens submitting new claims for unemployment benefits experienced a moderate increase last week. However, there were significant downward revisions for the preceding two weeks due to the exclusion of fraudulent applications from Massachusetts.
This indicates the continued strength of the labor market. The report from the Labor Department, released on Thursday, also revealed a decline in the number of individuals receiving unemployment benefits in mid-May.
These findings suggest that the economy is poised for another month of robust employment gains and a lower jobless rate. The eagerly awaited employment report for May, to be published by the government next Friday, will provide further insights.
Some economists have noted that the resilience of the labor market increases the likelihood of the Federal Reserve implementing another interest rate hike in June. The recently published minutes of the Fed’s May 2-3 policy meeting indicated that central bank officials generally agreed that the need for additional rate hikes had become less certain.
Traders eagerly awaited the release of the core personal consumption expenditures index, a preferred inflation gauge for the Fed, scheduled for Friday. According to the CME FedWatch tool, market expectations now reflected a 50-50 chance of a 25-basis-point rate hike in June, with no potential cuts anticipated before September.
Gold, a non-yielding asset, tends to lose appeal in environments of high-interest rates. Furthermore, the dollar’s ascent to its highest level since mid-March diminished gold’s attractiveness for overseas buyers, while benchmark Treasury yields approached levels not seen since March 13.