NEW YORK: Gold retreated on Tuesday, weighed down by a firm dollar, as investors hunkered down for the Federal Reserve’s policy verdict at the end of its two-day meeting this week for insight into the direction of US interest rates.
Spot gold fell 1.2percent to USD4,026.21 per ounce by 1200 GMT, while US gold futures for August delivery slid 1.3percent to USD4,025.70. “Gold has been holding to a very tight range based on support in the USD4,000 region since late June, which suggests that at some stage there will be a break-out,” said Rhona O’Connell, head of market analysis at StoneX.
“Fundamentally, the physical markets are still very quiet while professionals are contorting on the interaction between oil, interest rates and the dollar, all of which are important drivers,” Connell added.
The US dollar steadied near a four-week high on Tuesday, making greenback-priced bullion expensive for buyers overseas. On the geopolitical front, US President Donald Trump saidon Monday that Washington was having “good talks” with Iran and there was a chance of a deal to resolve their conflict, but warned that strikes would resume if negotiations failed to deliver.
Oil prices edged lower on Tuesday, hovering around one-week lows amid hopes for a resolution in the US-Iran war.
Elevated energy prices bolster expectations of higher interest rates by the Federal Reserve. While gold is typically seen as a hedge against inflation, higher interest rates tend to diminish gold’s appeal due to its non-yielding characteristic.
Trump on Monday called on the Fed to lower interest rates, saying the US should have the lowest interest rate in the world. Market participants are bracing for the Fed’s decision on interest rates tomorrow, where about 36percent of participants expect a 25-basis-point rate hike, according to the CME FedWatch Tool.
Additionally, traders are pricing in about an 80percent chance of an interest rate hike at the central bank’s September meeting. Among other metals, spot silver dropped 1.8percent to USD57.35 per ounce, platinum dipped 2.1percent to USD1,587.90, and palladium fell 3.1percent to USD1,251.92.
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