XAU/USD price edges up despite strong US Dollar amidst thin liquidity trading

• Gold bounces and shows signs of resilience despite a strong US dollar, as lower US Treasury bond yields lend some support amidst the backdrop of US Memorial Day and European holidays.
• Optimism soars amongst investors following a provisional deal between the White House and US Congress to raise the US debt ceiling.
• Positive US economic data spurred a hawkish repricing of the US Federal Reserve.

Gold price pares some of its fall of almost 2% last week, bouncing off from the $1940 area amidst thin liquidity conditions due to US Memorial Day and holidays across Europe. Lower US Treasury bond yields underpin XAU/USD, though a solid US Dollar (USD) caps its rally. The XAU/USD is trading at $1947, above its opening price by 0.08%.

Investors turn optimistic after a US debt-ceiling agreement; US Fed’s hawkish repricing influences markets

Sentiment amongst investors turned positive after a deal was reached between the White House (WH) and the US Congress. However, it remains subject to a vote as soon as possible, which would raise the US debt ceiling by two years until January 1, 2025. That keeps US equity futures positive, though the greenback is also up, as bets that the US Federal Reserve (Fed) will lift rates in June rose from 25.7% a week ago to 58.4% Today.

The reasons behind a “hawkish” repricing of the US Federal Reserve (Fed), come after solid Retail Sales, Industrial Production, and upward revision of the Gross Domestic Product (GDP) flashed signs of resiliency in the economy of the United States (US). That alongside the last week’s review of the Fed’s preferred gauge for inflation, the Core PCE stood at around the high 4%.

Therefore, US Treasury bond yields, particularly the 10-year benchmark note rate, edged toward 3.859% before reversing its course, down to 3.796%, a tailwind for Gold prices.

During the weekend, the Chicago Fed President Austan Goolsbee said the Fed is improving on its inflation goal but has not succeeded, adding that interest rate increases take months or years to be felt by the economy. He added that the Fed can get inflation down without a recession.