NEW YORK: Gold prices eased on Tuesday as hawkish signals from Federal Reserve policymakers reinforced market expectations interest rates will stay higher for longer.
Spot gold was down 0.4percent at USD4,327.74 per ounce by 1050 GMT. US gold futures fell 0.4percent to USD4,364.90. “Overnight, the Fed’s Musalem said more rate hikes are likely needed to cool prices, though he is known to lean hawkish. We remain stuck in a near-term range between USD4,300 and USD4,400 for gold,” said Jamie Dutta, a market analyst at trading platform Nemo.money.
“Tighter monetary policy is a headwind for gold, which means more than one Fed rate hike by year end will likely hurt the precious metal.” The Fed raised its policy rate by 25 basis points last week and Chairman Kevin Warsh flagged more hikes in the coming months. Fed policymakers such as St Louis Fed President Alberto Musalem and Chicago Fed President Austan Goolsbee continued to signal the need for further rate hikes to lower inflation stemming from strong demand and rising energy prices.
Traders see a 90percent chance of a rate hike in December, compared to 80percent last week, according to the CME FedWatch Tool. Bullion is traditionally viewed as a hedge against inflation and geopolitical risks, but its appeal tends to wane in a high-interest-rate environment as investors favour yield-bearing assets.
As tensions remained high in the Middle East, Houthi fighters pushed to seize strategic heights in Yemen to cut off the Red Sea coast from remaining areas held by Saudi-backed forces, after a report that US President Donald Trump had called off American strikes on the group at the last minute.
Oil prices fell after reports that Iran said it could reopen the Strait of Hormuz within seven days if the US takes initial steps to ease military pressure, easing concerns over disruptions to a key global oil shipping route.
Spot silver fell 0.6percent to USD65.65, platinum lost 0.2percent to USD1,794.03 and palladium declined 0.6percent to USD1,293.56.