Gold prices were subdued on Wednesday as market participants prepared for the U.S. Federal Reserve’s policy decision, with a rate hike widely anticipated. Spot gold was down 0.1% at $4,288.48 per ounce, as of 0143, following a decline to a more than one-month low on Monday. U.S. gold futures for December delivery experienced a decline of 0.1%, settling at $4,328.10. Traders are currently assigning a probability of 92.4% to the likelihood of a minimum 25-basis-point increase in U.S. interest rates later today, as indicated by CME FedWatch. The policy decision will be succeeded by a press conference featuring Fed Chair Kevin Warsh.
“A hawkish Fed could further pull gold down, while any soft messaging may ease bets on hikes and help the metal recover. Traders are also monitoring oil prices and developments in the Middle East,” said Frank Walbaum. Gold is frequently regarded as a safeguard against inflation; however, elevated interest rates raise the opportunity cost associated with maintaining non-yielding bullion. The dollar maintained its recent strength, while oil prices remained elevated above $100 per barrel.
A stronger dollar renders gold, priced in greenbacks, more costly for holders of alternative currencies, while high oil prices contribute to inflationary pressures. On the geopolitical front, Saudi Arabia has issued security alerts across a range of territories, including the holy city of Mecca and the second-largest city, Jeddah. This follows a week of attacks from Iran-aligned fighters that have drawn the nation deeper into the ongoing Middle East conflict.
Commerzbank noted that it was somewhat unexpected that gold prices had not faced more significant downward pressure thus far. It noted that gold’s resilience may be supported by persistent fiscal concerns, reflected in elevated long-term government bond yields, as well as a recent rise in U.S. political risks. Among other metals, spot silver steadied at $63.67 per ounce, platinum edged 0.3% lower to $1,770.47, while palladium rose nearly 1% to $1,301.61.
