Fed Pause Buoys Gold as Dollar Remains Soft

Gold prices rose for the second time this week as investors increasingly expect the Federal Reserve to pause its rate hikes. Spot gold increased by 0.4%, with a weaker dollar making it cheaper for buyers using other currencies. The bigger factor behind gold's rise, however, is interest rates: economists and market pricing suggest that the Fed will hold steady in September after softer jobs and inflation data reduced fears of further tightening.

This matters because gold doesn't pay interest, so when expected rates fall, the 'opportunity cost' of holding bullion also tends to decrease. Wednesday's Federal Reserve minutes could have a significant impact on markets even if no rate change is announced. By reshaping how traders think the Fed will act over the next few meetings, the minutes can influence expectations for real Treasury yields and, in turn, gold prices.

Markets are closely watching gold as a 'real-rate' story: when the future path of Fed policy is marked down, real Treasury yields tend to ease, making bullion more attractive relative to interest-paying assets. The minutes will provide insight into what Fed officials debated and how close they are to sitting tight.