Gold nears two-week low as stronger dollar, Fed hike bets pressure prices

Spot gold fell 1.2% to $4,062.72 an ounce by 23:55 ET (03:55 GMT), while U.S. Gold Futures declined 1.7% to $4,079.87. Prices tested the psychologically important $4,000-per-ounce level and have now fallen in five of the last six sessions, following three consecutive weekly losses.

Dollar strength and Fed expectations weigh on bullion

The U.S. dollar index (DXY) climbed to a fresh 13-month high on Wednesday as markets increased bets that the Federal Reserve could raise interest rates as soon as July and again later this year. A stronger dollar makes gold more expensive for holders of other currencies, while higher interest rates raise the opportunity cost of holding non-yielding assets such as bullion.

Traders now see a substantially higher probability of Fed tightening in the coming months after last week’s policy meeting and hawkish commentary from officials. Markets are pricing in roughly a 70% probability of a rate hike by September and are fully pricing in another increase by December.

According to ING analysts, “a stronger US dollar and expectations that the Fed could keep rates higher for longer outweighed safe-haven support from geopolitical risks.” They added that while geopolitical risks remain elevated, gold is likely to trade in line with Fed expectations, leaving prices vulnerable to higher yields and a firmer dollar in the near term.

Geopolitical risk premium eases, focus shifts to U.S. data

Gold also faced pressure as concerns over Middle East supply disruptions continued to ease. Investors monitored ongoing U.S.-Iran diplomatic efforts after both sides signaled progress toward implementing a broader peace framework aimed at normalizing energy flows through the Strait of Hormuz.

However, uncertainty remains over issues including nuclear inspections and access to frozen Iranian funds. Despite these unresolved matters, markets appeared more focused on monetary policy signals than on safe-haven demand.

Market participants are now awaiting U.S. Personal Consumption Expenditures (PCE) inflation data due on Thursday for further guidance on the Fed’s policy path.

Among other precious metals, silver prices edged down 0.2% to $61.44 per ounce after dropping more than 5% in the previous session. Platinum eased 0.8% to $1,640.88 per ounce.

FAQ

Why are gold prices falling?
Gold prices are declining primarily due to a stronger U.S. dollar and rising expectations of Federal Reserve interest rate hikes, which increase the opportunity cost of holding non-yielding bullion and reduce its appeal.

How much did gold move in the latest session?
Spot gold fell 1.2% to $4,062.72 an ounce, while U.S. Gold Futures dropped 1.7% to $4,079.87 by 23:55 ET (03:55 GMT).

What are markets expecting from the Federal Reserve?
Markets are pricing in roughly a 70% probability of a rate hike by September and fully pricing in another increase by December, reflecting expectations that the Fed could keep rates higher for longer.

How are other precious metals performing?
Silver slipped 0.2% to $61.44 per ounce after a decline of more than 5% in the previous session, while platinum fell 0.8% to $1,640.88 per ounce.