Bullion retreat from yearly highs on a stronger dollar and U.S. debt optimism

A rebounding U.S. dollar and the improved market risk sentiment have added some pressure on the dollar-denominated bullion, with the prices of Gold falling as low as $1,974/oz and Silver to a three-month low of $23.40/oz on Thursday morning.

Silver, 4-hour chart

The growing optimism after the tentative progress over the increase of the U.S. debt ceiling has eased fears for a debt default in the world’s largest economy, damaging the precious metal’s safe-haven appeal, and triggering a mini stock market rally during Wednesday’s session.

Adding to that, the DXY-U.S. dollar index which tracks the value of the greenback against a basket of six major peers has bounced back to the 103 regions, its seven-week high, recovering most of the losses after early March’s banking crisis and the collapse of several small regional U.S. banks.

Despite worries over the health of the U.S. banking sector and a series of weak economic data, the dollar has gotten some boost this week following several hawkish comments and signals from Fed officials amid the resilient inflation. The hawkish stance supports dollar and bond yields against the non-yielding precious metals, adding another selling pressure on their prices.

Historically, the soaring or falling dollar makes the dollar-denominated gold and silver more or less expensive for buyers with foreign currencies respectively.

However, gold and silver still hold most of 2023’s gains amid the growing bets for safety following the recent banking turmoil coupled with the economic and political uncertainty, in a time when the strength of the greenback eased.

The bullish bullion fundamentals pushed the price of gold to nearly all-time highs of $2,070/oz in early May, while the white metal -silver- hit a 12-month high of $26/oz in the same period, before retreating lower by 5% and 10% respectively.