Gold Falls as Fed Rate Hike Bets Hit Near Certainty

Gold prices dipped on Monday as investors focused on the Federal Reserve's interest rate decision this week. The US central bank is widely expected to raise rates for the first time in over three years, with bets now at nearly 95% according to the CME FedWatch tool.

The chances of a quarter-point rate hike have increased from 59.4% a week ago to 92.5%, driven by recent key US consumer and producer inflation data and a blockbuster August nonfarm payrolls report. Higher interest rates tend to weigh on gold, lifting the dollar in the process and making bullion more expensive for foreign buyers.

The precious metal slipped 1.2% to settle at $4,298.80/oz, while gold futures dropped 1.6% to settle at $4,340.00/oz. A surge in oil prices has also played a part in firming expectations for the hike, with crude benchmarks soaring nearly 20% over the last two weeks.

ANZ expects escalating Middle East tensions and higher energy prices to drive inflation higher and forecasts three 25-basis point Fed rate hikes by March 2027. However, ANZ believes those inflation pressures are being driven by geopolitical disruptions, which it thinks should preserve gold's safe-haven appeal.