Gold Slips as Interest Rate Hike Prospects Weigh on Market

The value of gold declined on July 29 as investors weighed the likelihood of an interest rate hike by the Federal Reserve. The precious metal fell by as much as 0.8% to around $4,040 an ounce, wiping out a modest gain from the previous session.

Traders are positioning themselves for the Fed's rate decision, with policymakers torn between June's lower-than-expected inflation reading and the recent rise in oil prices caused by the US-Iran conflict. Interest rate swaps imply a 40% chance of a quarter-point increase, an unusually high degree of uncertainty so close to a Fed decision.

Citadel Securities expects a hike this week, arguing it would strengthen Fed Chairman Kevin Warsh's credibility in battling inflation. OCBC Bank strategist Christopher Wong said that even if the Fed leaves rates unchanged, a hawkish message or signal that further tightening is under consideration could lend support to real yields and the US dollar, capping gold's recovery.

Gold has been down by nearly a quarter since the US-Iran war began five months ago, with high energy prices stoking inflationary pressures. However, it has held near the key support level of $4,000 an ounce since late June, bolstered by dip-buying and a recent wave of buying from bullion-backed exchange-traded funds.