Gold Tumbles Amid Hawkish Fed Expectations and Strong US Dollar

Gold prices are falling for the second consecutive day due to increased demand for the US Dollar. The Greenback has staged a strong comeback, reaching three-week highs, driven by market expectations of a potential interest rate hike by the Federal Reserve this week.

The CME Group's FedWatch Tool indicates that markets are pricing in a 38% chance of a 25-basis-point interest rate hike at the July meeting and an 81% probability of a hike in September. This hawkish sentiment is supporting front-end US Treasury bond yields and the Dollar, but not gold.

The optimism generated by easing oil prices and inflation fears has been offset by persistent market expectations around the Fed's potential action. Additionally, the recent sell-off in Asian chipmakers is weighing on risk sentiment and keeping demand for the Dollar strong.

As a result, gold sellers are likely to maintain control as long as the Dollar remains strong due to hawkish Fed bets and a risk-averse market environment. Furthermore, traders may refrain from placing fresh directional bets ahead of the Fed's policy announcements on Wednesday, leaving gold vulnerable amid a bearish technical setup.