Gold Prices Dip As US Debt Deal Eases Market Concerns And Fed Rate Hike Expectations Grow

Gold prices fell in light trade on Monday as the US debt ceiling agreement relieved market concerns and weighed on safer assets, while the prospect of the Federal Reserve boosting interest rates reduced demand for bullion.

Spot gold, trading at $1,945.29 per ounce by 1013 GMT, experienced a marginal 0.1% decline, remaining close to the two-month lows reached on Friday. Similarly, US gold futures remained steady at $1,944.80.

The drop in safe-haven gold came as international equities rose on news of a debt deal being concluded in Washington, albeit trade was sluggish with sections of Europe, including the United Kingdom, and the United States on holiday.

"Until a couple of days ago, a majority of investors were betting that the Federal Reserve would remain steady with rates and not raise them in the coming month," said Carlo Alberto De Casa, external analyst at Kinesis Money.

The latest economic data has shifted expectations, indicating that the Federal Reserve is now likely to increase rates during its upcoming meeting on June 13-14.

Fed Fund futures indicated a 65.6 percent possibility of a 25-basis-point increase, with rates topping at 5.317 percent in July.

When interest rates rise, gold, which has no yield of its own, tends to lose favour with investors.

The dollar index was nearing a two-month high, putting pressure on gold prices. A stronger dollar raises the price of gold for holders of other currencies.

"As long as we remain above $1,900, I don't see too much risk of further decline... I see a small margin for a decline, which in the worst-case scenario could be $1,800, but no more because the demand is very solid, but we can have temporary correction," De Casa added.

Silver fell 0.4% to $23.21 per ounce, while platinum increased 0.6% to $1,028.44 and palladium increased 0.3% to $1,427.99.