Fed Decision Looms as Gold Prices Plummet to One-Week Low

Gold prices tumbled on Tuesday to erase all of last day's gains as investors awaited a potentially decisive Federal Reserve decision on interest rates. Spot gold fell by as much as 1.5% to just above US$4,010 an ounce, a new one-week low.

The metal had rallied the previous day after inflation concerns eased following a pause in the US-Iran strikes. However, bullion has spiralled downwards since the war started in late February due to concerns over inflation, experiencing a 25% drop and trading at levels last seen in November.

Despite efforts to resolve Middle East conflicts and a temporary pause in fighting, the inflationary fallout of the war still lingers. A prolonged inflation puts pressure on central banks to raise interest rates, which would hurt gold.

A hawkish tilt by the Fed has forced interest rate hike expectations and the US dollar higher, applying pressure on the gold market. Interest-rate swaps imply about a 33% chance of a rate hike at the upcoming meeting, representing a relatively high degree of uncertainty so close to a Fed decision.