Gold prices stayed close to $4,000 an ounce on Tuesday as investors waited for the US Federal Reserve’s interest-rate decision this week. Traders expect the central bank to keep interest rates unchanged.
Gold prices changed little after rising in the previous trading session. The precious metal gained 0.5% in the previous session but remained under pressure as investors assessed inflation risks and the outlook for US interest rates, Bloomberg reported.
Gold prices face pressure from inflation
Oil prices fell for a second straight day as hopes for diplomatic talks eased concerns about a wider US-Iran conflict. Meanwhile, stock markets were expected to rise as interest in artificial intelligence (AI) stocks returned after a selloff last week.
Gold has faced pressure from concerns about inflation and high energy prices. Persistently high oil prices could keep inflation elevated and make it harder for central banks to lower interest rates. This has created uncertainty for gold investors.
Gold price support level at $3,886
Gold was also affected by a wider selloff in AI-related investments. When technology stocks fell, some investors sold gold to cover losses in other investments. This added to the pressure on the precious metal, which dropped to its lowest level since mid-July on Friday, according to Bloomberg.
A Standard Chartered analyst warned that gold needs to find a strong price level to stop further declines. Suki Cooper, the bank’s global head of commodities research, said high oil prices were keeping inflation risks in focus. She also warned that the possibility of further interest-rate increases could weigh on gold prices, according to a note cited by Bloomberg.
Cooper identified $3,886 an ounce as an important level for gold prices. She said gold was at a critical point and warned that buying support could weaken quickly if prices failed to find technical support at that level.
Fed rate decision keeps gold traders cautious
Expectations about the Federal Reserve’s next interest-rate move have changed over the past month. Investors first expected the Federal Reserve to raise interest rates in October after new data showed that inflation was higher than expected. However, comments from central bank officials later reduced these expectations, Bloomberg reported.
Traders believe there is very little chance that the Federal Reserve will increase interest rates this week. Markets expect only a 10% chance of a rate hike at the Fed’s upcoming meeting. However, rising energy prices have kept open the possibility of an interest rate increase later this year.
Higher interest rates can reduce demand for gold because gold does not earn interest. When interest rates rise, investors may choose other investments that offer returns instead of holding gold. This can make gold less attractive to investors and put pressure on its prices.
Gold, silver prices fall as dollar gains
Spot gold prices fell 0.2% to $4,007.66 an ounce at 7:47 a.m. Singapore time. Silver prices dropped 0.1% to $53.90 an ounce. Platinum and palladium prices remained almost unchanged.
The US dollar also rose slightly. The Bloomberg Dollar Spot Index, which measures the dollar against a group of major currencies, moved higher. Changes in the dollar can affect gold prices because gold is bought and sold around the world in US dollars, Bloomberg reported.
