Fed Hike Expectations Weigh on Gold Prices as Central Bank Demand Remains Strong

Gold prices retreated by 1.2% to $4,296.27 an ounce on the spot market due to expectations of a near-certain rate hike by the Federal Reserve. According to the CME's FedWatch tool, futures traders assigned roughly 90% odds to a rate increase when the central bank wraps up its two-day gathering on Wednesday.

The setup marks the first US rate hike in three years, and gold is feeling the heat due to rising Treasury yields, which raise the opportunity cost of holding a non-yielding asset and lift the dollar. Fresh inflation figures and sharp jump in energy prices have also contributed to the decline.

However, the selling has been orderly, with no panic-driven liquidation hitting futures markets. Instead, investors are largely sitting on their hands before the Fed's verdict.

The tension between monetary tightening and physical demand has defined the past several sessions. While US inflation data and climbing oil prices pressured gold, stabilizing forces kicked in away from the rates market, helping the metal steady by Friday.