Gold eased on Wednesday as a stronger U.S. dollar and elevated Treasury yields weighed on prices before the Federal Reserve's interest-rate decision. U.S. gold futures slipped 0.84% to $4,004.60, extending a drop of more than 1% in the previous session. A rebound in oil prices after renewed Middle East hostilities added another variable.
Gold prices eased on Wednesday as a stronger U.S. dollar and elevated Treasury yields weighed on prices, with investors awaiting the Federal Reserve's interest-rate decision and comments from Chair Kevin Warsh later in the day for signals on the future path of monetary policy. U.S. Gold futures slipped 0.84% to $4,004.60.
Dollar near a one-month high adds pressure
The US Dollar Index was largely flat on Wednesday but remained near a one-month high, making gold more expensive for overseas buyers. The precious metal extended losses after dropping more than 1% in the previous session, pressured by the firmer dollar and higher Treasury yields ahead of the policy decision.
According to CME Group's FedWatch Tool, traders assign a roughly 68% probability that the Fed leaves rates unchanged on Wednesday, with a 32% chance of a 25-basis-point increase. They are also pricing in a roughly 77% chance of a rate hike in September.
The Fed is widely expected to leave interest rates unchanged at the conclusion of its two-day meeting later on Wednesday. According to investingLive, the current target range is 3.50%-3.75%. Higher-for-longer interest rates typically weigh on gold by increasing the opportunity cost of holding the non-yielding asset.
Renewed Middle East hostilities lift oil
Investors also monitored renewed tensions in the Middle East after the U.S. military said it intercepted multiple ballistic missiles launched by Iran towards American forces in the region. Iran's Revolutionary Guards later said they had targeted a U.S. air base and a U.S. Central Command facility in Jordan, raising concerns that the recent diplomatic pause could prove short-lived.
Those attacks ended a four-day pause in direct military exchanges between Washington and Tehran. Oil prices rebounded more than 4% on Wednesday after the latest exchange. ING analysts said in a note that the higher oil prices would reignite inflation concerns and weigh on gold: "Higher oil prices amid a re-escalation in the Middle East will weigh on gold".
Silver climbs as traders wait on PCE and payrolls
Traders are also looking ahead to U.S. economic data later this week, including the personal consumption expenditures price index and the July payrolls report, for further insight into the outlook for interest rates.
Elsewhere in precious metals, silver rose about 1% to $57.63 an ounce, while platinum fell 0.8% to $1,594.30 an ounce.
Sources: Investing.com, investingLive
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