Gold Tumbles as Traders Weigh US Interest Rate Hike Prospects

Gold prices declined on Tuesday, July 28, ahead of the US Federal Reserve's potentially divisive rate decision on Wednesday. Traders are positioning themselves for the rate decision, with policymakers torn between June's tamer-than-expected inflation reading and the recent rise in oil prices due to the flare-up in fighting between the US and Iran.

Citadel Securities expects a hike this week, arguing it would strengthen Fed chairman Kevin Warsh's credibility in the battle with inflation. Even if the Fed leaves rates unchanged, a hawkish message or signal that further tightening remains under consideration could lend support to real yields and the US dollar, temporarily capping gold's recovery.

The expectation of higher interest rates is keeping gold under pressure, according to analysts from Shenzhen-based Zhishui Investment Management. Spot gold slipped 0.7 per cent to $4,047.22 an ounce as at 10:25 am in Singapore, while silver fell 1.7 per cent to $57.39 an ounce.