Gold prices fell on Tuesday, weighed down by a firmer dollar and elevated U.S. bond yields, as the Federal Reserve gears up for a hefty rate hike to tame inflation pressures.

Spot gold was down 0.4% at $1,669.80 per ounce, as of 0839 GMT. U.S. gold futures were flat at $1,678.20.
“Gold is under pressure, it remains close to the two-year low that it touched on Friday and the main reason for this is the strong dollar,” said Ricardo Evangelista, senior analyst at ActivTrades.

“The Fed decision is coming up tomorrow (Wednesday) and expectation is for a 75 basis points rate hike. However, there is an outside chance that we could see a 1% hike and if this was to happen, I think there would be more downside for gold.”

The dollar remained firm near a two-decade high, making gold less appealing for other currency holders. Benchmark 10-year U.S. Treasury yields were hovering near their highest level since 2011.

The Fed at the conclusion of its two-day policy meeting on Wednesday will likely deliver its third straight super-sized 75 basis point interest rate hike.

The Bank of England and the Bank of Japan will decide policy on Thursday. Central banks around the world continue their fight against soaring inflation.

Although gold is considered a hedge against inflation, higher interest rates lift the opportunity cost of holding zero-yield bullion.

Indicative of sentiment, holdings in the SPDR Gold Trust

, the world’s largest gold-backed exchange-traded fund, have dropped to their lowest since March 2020.

“Haven demand remains subdued despite the rising geopolitical risks and worsening economic backdrop,” ANZ analysts said in a note.

“Technically, the bearish trend is likely to continue. The break below $1,675/oz suggests the price could fall to $1,600/oz.”

Spot silver slipped 1.4% to $19.34 per ounce. Platinum gained 0.2% to $920.56 and palladium dropped 2.5% to $2,173.31.