Gold Slips Toward $4,000 as Dollar Surges on Fed Rate Hike Bets

TLDR

• Gold fell to a two-week low, testing the $4,000 per ounce level on Wednesday
• The U.S. dollar climbed to a 13-month high, putting pressure on gold prices
• Markets are now pricing in a roughly 70% chance of a Fed rate hike by September
• Gold has declined in five of the last six sessions and posted three straight weekly losses
• Traders are watching Thursday’s PCE inflation data for more clues on Fed policy

Gold prices fell sharply on Wednesday, dropping close to the psychologically important $4,000 per ounce mark. The move came as the U.S. dollar surged to its highest level in 13 months.

Spot gold fell 1.1% to $4,067.72 per ounce, after touching a low of $4,050.60 in early trading. U.S. gold futures dropped 1.6% to $4,083.60. The metal has now fallen in five of the last six sessions.

Gold has also posted three straight weeks of losses. That is a stretch of sustained selling pressure not seen recently in the precious metals market.

The U.S. Dollar Index climbed to a fresh 13-month high on Wednesday. A stronger dollar makes gold more expensive for buyers using other currencies, which tends to reduce demand.

Fed Rate Hike Bets Drive the Selloff

Markets are now pricing in around a 70% probability of a Federal Reserve rate hike by September. Traders are fully pricing in another increase by December.

Higher interest rates make gold less attractive because it does not pay interest or dividends. Investors can earn a return elsewhere, raising the cost of holding bullion.

Gold has received some safe-haven support in recent months from Middle East tensions. But that support has been fading.

Geopolitical Risk Eases, Inflation Data Ahead

Investors have been watching U.S.-Iran diplomatic talks. Both sides have signaled progress toward a broader peace framework that could stabilize energy flows through the Strait of Hormuz.

Uncertainty still remains over issues including nuclear inspections and access to frozen Iranian funds. But the direction of travel has reduced some of the geopolitical risk premium in gold.

Analysts at ING said gold is likely to trade in line with Fed expectations in the near term. That leaves prices open to further pressure if yields rise and the dollar stays strong.

The next major data point is the U.S. Personal Consumption Expenditures report, due Thursday. PCE is the Fed’s preferred inflation measure and could shift expectations on rate policy.

Among other metals, silver edged up 0.8% to $61.12 per ounce, though it had fallen more than 5% in the prior session. Platinum slipped 1.2% to $1,634.81 per ounce.

Copper also declined. London Metal Exchange copper futures fell 0.3% to $13,343.88 per ton, while U.S. copper futures shed 0.6% to $6.10 per pound.

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