Gold Prices Plummet as Fed Rate Hike Bets Offset Iran War Pause

Gold prices have retreated to around $4,050 after two days of losses, as the US Dollar gains strength in anticipation of a potential Federal Reserve rate hike. The Fed meeting, which began on Tuesday and concludes Wednesday, is expected to have a significant impact on gold prices.

Economists at DBS Group Research describe the current US macro backdrop as uneven, noting that 'the macro dataflow at the current juncture is however mixed, offering some ammunition to those in favour of a wait-and-see approach.' They argue that 'once wage growth (around zero in real terms), retail sales (on the soft side), and the public debt situation (enormous forthcoming issuances tilted toward short duration) are considered, the case for pause, for the time being, remains.'

Markets are pricing in a 38% chance of a 25-basis-point Fed rate hike at the July meeting, up from 16% seen over a week ago. This has led to a strengthening US Dollar and a weakening gold price.