$4,000 Gold Test: Fed Decision Weighs on Bullion Prices

Gold prices tested the $4,000 mark on Tuesday, dipping to $4,011.10 and trading at $4,021.20 by mid-morning in New York, down 1.4% on the day.

The fragile pause in Middle East fighting has drained the inflation premium out of the market, causing bullion prices to drop. The war premium, which had been propping up gold since May, is slowly leaking away as tensions ease and oil prices decline.

Citadel Securities expects a hike from the Federal Reserve this week, arguing it would strengthen Fed chair Kevin Warsh's credibility in his battle with inflation. However, even if rates remain unchanged, a hawkish message could lend support to real yields and the US dollar, capping gold's recovery.