Gold prices saw volatility on Tuesday, briefly dipping below $4,000 an ounce as investors awaited the Federal Reserve’s policy decision later this week. At 08:56 ET, gold had recovered slightly, rising 0.1% to $4,023.00 an ounce, while U.S. gold futures fell 0.1% to $4,036.27. The metal had gained 0.5% in the previous session but gave up some of those gains as traders assessed the likelihood of the Fed keeping interest rates unchanged on Wednesday.
Diplomatic efforts to ease tensions between the U.S. and Iran added to the uncertainty, with gold traders watching for any developments that could impact market sentiment. Despite hopes for a de-escalation, gold faced pressure from inflation concerns driven by high energy prices. Markets currently assign only a 10% probability to an interest-rate hike at the Fed’s upcoming meeting, though expectations for a hike before year-end remain due to elevated energy costs.
Traders had initially increased bets on an October rate hike following stronger-than-expected U.S. inflation data, but recent comments from central bank officials downplaying the urgency of another rate increase tempered those expectations. The Fed last raised rates in September, marking its first hike since 2023. Higher rates typically reduce demand for non-yielding assets like gold.
David Morrison, Senior Market Analyst at Trade Nation, warned of potential downside risks for gold, noting that a breakdown in support could lead to a deeper pullback toward $3,500. He also highlighted the influence of the U.S. dollar, which strengthened 0.2% to 102.18, reducing gold’s appeal to overseas buyers.