Gold falls below $2,000 as the US debt ceiling weighs on sentiment.

Tuesday, congressional leaders from both parties failed to reach a consensus on raising the debt limit. What is gold's purpose?

Tuesday's decline in gold prices followed the conclusion of a meeting between President Joe Biden and congressional leaders where no progress was made towards a debt limit agreement. Effectively, the American economy will enter default on June 1 if policymakers do not reach a consensus.

In this environment, the price of gold per troy ounce fell 1.5% yesterday to fall below $2,000 and reach a session low of $1,980. The dollar's strength contributed to the decline. Since early May, when gold prices lingered near an all-time high, bullion prices have decreased by approximately 5%.

So, what is the relationship between gold and the debt ceiling? As the US government has reached its $31.4tn debt limit, the Treasury coffers are dwindling at a rapid rate. With a potential market meltdown in a no-deal scenario, gold could be thrust into the limelight if investors decide to abandon the dollar and equities in favour of traditional safe-haven assets.