Gold Prices Struggle Amid U.S. Debt-Ceiling Concerns

Gold prices edged lower on Monday after a short-lived recovery, as investors show a lack of conviction amid risk aversion and US debt-ceiling concerns.

At the time of writing, spot gold XAU/USD is trading at the $1,970 area, 0.25% below its opening price. Last week, the metal suffered a 1.65% loss, marking its poorest performance in three months.

The ongoing focus remains on the negotiations surrounding the US debt ceiling as President Joe Biden pushes to strike a deal before the June 1 deadline after talks ground to a standstill on Friday. Although unlikely, the absence of an agreement within Congress could result in a "catastrophic" default for the world's largest economy.

Additionally, investors will closely monitor any statements from Federal Reserve officials and the minutes of the latest Federal Open Market Committee (FOMC) meeting to gain insight into the central bank's future actions. On Friday, Fed Chairman Jerome Powell mentioned that there is still a long way to go to meet the inflation target. However, he acknowledged that the risks of excessive measures versus inadequate measures are becoming more balanced, indicating a less aggressive stance.

Nonetheless, US bond yields have been increasing, with the 10-year note currently yielding 3.726% after seven consecutive days of gains. Higher yields could be seen as one of the main headwinds for the non-yielding metal. Still, gold prices remain just below the $2,000 level and near record highs at the $2,070-75 area.


From a technical perspective, the XAU/USD short-term picture remains negative according to indicators on the daily chart, while the price struggles to stage a sustainable bounce. 

A drop below last week's lows around the $1,950 level would expose the 100-day Simple Moving Average (SMA) at the $1,930 zone. A breach of the latter would further deteriorate the medium-term prospects for the precious metal. 

Conversely, a recovery of the $2,000-05 zone would ease the immediate pressure, targeting the $2,050 zone en route to record highs.