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- – Growing concerns about the US debt ceiling crisis are expected to benefit gold, as investors brace for potential chaos in financial markets, according to RBC Capital Markets.

Hopes of a deal to avoid the first US default were dashed after President Joe Biden and House Speaker Kevin McCarthy postponed a meeting scheduled for Friday aimed at resolving the impasse. However, the delay indicates that the staff-level meeting has made progress, according to people familiar with the talks.

The fraught negotiations set the stage for a near-term consolidation of bullion, which is within walking distance of a record high, said Christopher Looney, strategist at RBC Capital Markets.

“Even assuming an agreement is eventually reached, we will not ignore the potential growing financial anxiety as the deadline approaches,” he said in a note. “In the near term, we believe that gold appears to be the best safe haven from these risks.”

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Another thing that supports gold

In another boost for the precious metal, markets are pricing in US interest rate cuts later this year, which should support non-interest-bearing gold. These bets are boosted by data this week showing cool inflation and initial jobless claims reaching the highest level since October 2021.

Analysts Sonny Kumari and Daniel Hynes said in a note that the standoff in Washington is just one of many things supporting gold’s rally as the Federal Reserve nears the end of its rate hike cycle. They said heightened geopolitical risks, ongoing concern about the health of the US banking sector and concerns about an economic slowdown also boost the safe haven’s appeal.


Against this backdrop, ANZ analysts said, flows into gold exchange-traded funds are likely to remain positive for the rest of this year. ETF holdings have been on the rebound since early March when the failure of the Silicon Valley Bank raised concerns about US lenders.


ANZ Bank added in a note that it expects central banks in developing economies to continue their demand for gold to protect their foreign exchange reserves.

“Demand for physical gold appears to be picking up as consumers adjust to higher prices. Returning demand in India could lift gold buying there in the second half of this year,” the bank added.

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