Gold dips 2% in the past month as concerns over US debt crisis ease

Gold prices continued their downtrend and ended at ₹60,390 per 10 gm on Wednesday. With this, prices have fallen by ₹1,256 per 10 gm or two per cent from ₹61,646 on May 4 as the uncertainty over the US debt crisis eased.

The yellow metal will lose its haven appeal if US President Joe Biden succeeds in getting the approval for raising more debt. Biden has urged US Congress to pass a deal to raise the government’s borrowing limit and prevent a potentially catastrophic default on US debt repayments.

Negotiators from Democratic and Republican parties finalized an agreement last Sunday. Tentatively, the broad terms of the deal are that the $31.4 trillion debt cap will be suspended till January 2025. The government can continue borrowing money to finance itself. In exchange, the White House has promised to limit discretionary non-defense expenditure in 2024 to levels from 2023 and to increase it by 1 per cent in the following year.

Spot gold was down at ₹60,390 on Wednesday, as reported by the Indian Bullion and Jewelers Association. Gold for August delivery on MCX was flat at ₹60,074 per 10 gram against ₹59,998 on Tuesday.

However, given the ensuing financial crisis across the globe, the yellow metal will still be a safe bet. Macro indicators globally reflected the dual dilemma of growth and inflation. Consumer confidence in the US fell in May. In China, manufacturing PMI dipped to its lowest level in past five months, signaling some degree of slowdown.

Saumil Gandhi, Senior Analyst (Commodities), HDFC Securities, said gold prices retreated after price rose nearly 0.80 per cent in the previous session. On Tuesday, gold price moved higher on the back of haven buying after traders assessed the possible impact of a US debt ceiling deal that could add another concern for economy growth. The deal will aggravate the risk of recession by limiting government spending used to support US growth, he said.

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