Dollar Strength Weighs on Gold as Fed Rate Hikes Loom

Gold prices declined on Wednesday due to a stronger US dollar and concerns over inflation and potential further interest rate increases from the Federal Reserve. The dollar reached its highest level since July 30, making gold more expensive for holders of other currencies and limiting demand. The Fed raised its policy rate by 25 basis points last week, and St. Louis Fed President Alberto Musalem and Chicago Fed President Austan Goolsbee have signaled the need for additional rate hikes to contain inflation.

The situation in the Middle East also weighed on gold prices as diplomatic efforts between the US and Iran raised hopes of a peaceful resolution. However, higher energy prices can feed inflation and encourage tighter monetary policy, which could further support interest rates and negatively impact gold demand. Meanwhile, investment demand for gold is recovering, with about 50 tonnes flowing into bullion-backed ETFs in September.