Gold gains with debt ceiling and inflation in spotlight

Gold prices rose on Tuesday, buoyed by economic uncertainties including the U.S. debt ceiling stand-off as traders braced for inflation readings that could influence the Federal Reserve’s interest rate strategy.

Though expectation of a Fed rate cut “is a bit too optimistic and early”, gold could consolidate around $1,980-$2,060 in the short term, said Carlo Alberto De Casa, external analyst at Kinesis Money.

For the time being, markets are also in “wait and see” mode because U.S. consumer price index (CPI) data due on Wednesday will have a bearing on the Fed’s rate decision, De Casa added.

While bullion is considered an inflation hedge, higher interest rates dent the non-yielding asset’s appeal.

Traders are currently pricing in an 85.7% chance of the U.S. central bank keeping rates on hold in June after Fed Chair Jerome Powell said last week that policy decisions will be data driven and hinted at a likely pause to its rate hike cycle.

Investors are also monitoring developments in the country’s banking sector and its debt ceiling.