Gold Slumps Ahead of Federal Reserve Interest Rate Decision

Gold prices declined by as much as 0.8% to $4,040 per ounce ahead of the Federal Reserve's decision on interest rates this week. The move comes as traders weigh the impact of a potential rate hike, which could have far-reaching implications for the precious metal.

Ahead of Wednesday's highly anticipated decision, gold has been under pressure due to rising expectations of higher interest rates. According to interest rate swaps, there is a roughly 40% likelihood of a 25 basis point hike on Wednesday, which is an unusually high level of uncertainty just ahead of the Federal Reserve's decision.

Citadel Securities expects a rate hike this week, citing its potential to enhance the credibility of Federal Reserve Chair Kevin Warsh in the battle against inflation. Meanwhile, Christopher Wong, a strategist at Oversea-Chinese Banking Corp, noted that even if the Fed keeps interest rates unchanged, a hawkish message or a clear sign that further tightening is still under consideration may support real yields and the U.S. dollar, limiting gold's recovery.

Despite the decline in gold prices, the metal has remained near the key support level of $4,000 per ounce since late June, supported by a wave of buying when prices dip. Gold-backed exchange-traded funds have increased their holdings for five consecutive days, marking the longest winning streak since May.