LONDON: Gold prices edged lower on Tuesday, as the dollar firmed, ahead of a Federal Reserve meeting that investors will be watching for an update on the pace at which the US central bank plans to wind down its pandemic stimulus measures. Spot gold fell 0.2% to $1,782.60 per ounce by 0923 GMT. US gold futures dropped 0.2% to $1,784.60.
“The strong US dollar and rising US real interest rates on declining inflation expectations, as gauged by break-even inflation rates, are the factors keeping gold below $1,800/oz,” said UBS analyst Giovanni Staunovo.
“Market participants will closely track the upcoming Federal Open Market Committee meeting to see how the central bank reacts on elevated inflation, which will result in likely larger price moves.”
The dollar remained firm, limiting demand for bullion for buyers holding other currencies. Meanwhile, US Treasury yields ticked up from a one-week trough touched in the previous session, also pressuring gold.
The Fed will begin its two-day monetary policy meeting later in the day. It is expected to announce that it is wrapping up bond buying stimulus sooner than previously communicated, potentially setting up earlier interest rate hikes next year.
Reduced stimulus and interest rate hikes tend to push government bond yields up, raising the opportunity cost of holding bullion, which bears no interest. “Should the Fed step up the gear on tapering, this is likely to punish gold prices as the dollar appreciates, yields rise and rate hike expectations jump. In the meantime, support can be found at $1,765 and resistance around the psychological $1,800 level,” FXTM analyst Lukman Otunuga said in a note.
The European Central Bank, the Bank of England and the Bank of Japan are also scheduled to meet this week. Spot silver dipped 0.4% to $22.21 an ounce. Platinum edged 0.2% lower to $928.12, while palladium gained 0.3% to $1,685.77.