Gold Prices Hold Steady Ahead of Fed Decision Amid High Rate Hike Bets
Gold prices steadied on Wednesday after a two-day drop, holding steady at around US$4,290 an ounce as markets await the Federal Reserve's policy decision later in the day.
The Fed's rate hike bets remain high, with traders pricing in a 92% chance of an increase. Elevated energy prices have driven bond yields higher, pushing borrowing costs up and typically negative for gold, which does not pay interest.
Higher borrowing costs are also evident in the 10-year US Treasury yield, which rose to its highest level in almost two decades on Tuesday at 5.04%. This has added to investor expectations that the central bank will raise interest rates for the first time since 2023.
According to Christopher Wong, a strategist at OCBC, 'With markets already pricing a high chance of a Fed hike this week, the main uncertainty is less about the hike itself, and more about what comes after.' He warns that if the Fed keeps the door open to further tightening, gold may be more vulnerable and move lower towards US$4,000 an ounce if key support at US$4,250 is broken.