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Gold prices eased on Tuesday as a firmer dollar made bullion less appealing for holders of other currencies, while investors eyed a pivotal US Federal Reserve policy meeting amid growing concerns over a sustained bout of inflation.

Fundamentals

  • Spot gold was down 0.2% at $1,789.58 per ounce, as of 0158 GMT. US gold futures dropped 0.2% to $1,791.50.

  • The dollar index edged up 0.1% after declining 0.3% on Monday.

Gold edges higher as dollar eases, investors await Fed meet

  • The Federal Reserve's two-day policy meeting concludes on Wednesday.

  • Price and wage increases running at multi-decade highs may challenge the Fed as they try to maintain a balance between containing inflation and giving the economy as much time as possible to restore the jobs lost since the pandemic.

  • US manufacturing activity slowed in October, with all industries reporting record-long lead times for raw materials, indicating that stretched supply chains continued to constrain economic activity early in the fourth quarter.

  • Goldman Sachs has brought forward its forecast by a year to July 2022 for the first post-pandemic US interest rate hike, as the investment bank expects inflation to remain elevated.

  • Gold is traditionally seen as an inflation hedge. However, reduced stimulus and interest rate hikes to combat such inflationary pressure tend to push government bond yields up, raising the opportunity cost of non-interest-bearing gold.

    • The Bank of England heads this week into its most unpredictable interest rate decision in years, leaving investors and analysts on edge about the chance of its first hike since the pandemic struck the world economy.
  • Spot silver fell 0.2% to $23.98 per ounce. Platinum dropped 0.7% to $1,056.58, while palladium was flat at $2,047.26.

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