Gold prices fell nearly 2% on Tuesday as a stronger US dollar and rising expectations of Federal Reserve interest-rate hikes reduced demand for the precious metal.
Investors also assessed progress in peace negotiations between the United States and Iran, which influenced demand for traditional safe-haven assets.
Gold Prices Drop as Dollar Strengthens
Spot gold declined by 1.8% to $4,117.61 per ounce during early trading.
US gold futures also moved lower, falling by 1.6% to $4,135.10 per ounce.
The decline reversed part of Monday’s 0.7% gain, which had been driven by optimism surrounding US-Iran peace talks.
Meanwhile, the US Dollar Index remained close to the 13-month high reached during the previous week.
Federal Reserve Rate Hike Bets Pressure Gold
The dollar continued to benefit from the Federal Reserve’s more hawkish policy position.
During its latest meeting, the first chaired by Kevin Warsh, the central bank kept interest rates unchanged within a range of 3.50% to 3.75%.
However, updated projections showed growing support among policymakers for at least one additional rate increase before the end of the year.
Futures markets were pricing in an approximately 90% chance of a rate hike in December. Some investors also expected the Federal Reserve to raise borrowing costs more than once as officials remained concerned about inflation.
Why Higher Interest Rates Weigh on Gold
A stronger dollar makes gold more expensive for investors using other currencies. This can reduce international demand for the metal.
Higher interest rates also tend to weaken the appeal of gold because bullion does not provide interest or dividend income.
As a result, expectations of tighter US monetary policy placed additional pressure on gold prices.
US-Iran Peace Talks Remain in Focus
Investors continued to monitor diplomatic negotiations between Washington and Tehran.
The United States granted a 60-day sanctions waiver covering some Iranian oil sales after initial talks in Switzerland. US officials described the discussions as constructive.
Progress toward a broader agreement could reduce geopolitical uncertainty and weaken demand for safe-haven assets such as gold.
Iran Conflict Keeps Inflation Risks Elevated
Although gold often benefits during periods of geopolitical instability, investors have increasingly focused on the inflationary impact of the Iran conflict.
The war pushed oil prices sharply higher earlier this year. This increased concerns that energy-driven inflation could force central banks to maintain restrictive monetary policies for longer.
Persistent inflation could also encourage the Federal Reserve and other central banks to raise interest rates or delay future rate cuts.
Markets Await US PCE Inflation Data
Investor attention is now turning toward the latest US Personal Consumption Expenditures inflation report, which is scheduled for release on Thursday.
The PCE Price Index is the Federal Reserve’s preferred inflation measure.
A stronger-than-expected reading could reinforce expectations of further interest-rate increases and place additional pressure on gold.
However, weaker inflation data could reduce rate hike expectations and provide some support to precious metals.
Silver and Platinum Prices Decline
Other precious metals also recorded significant losses.
Silver prices fell by 4.3% to $62.29 per ounce, while platinum declined by 2.6% to $1,639.60 per ounce.
The broader decline suggested that investors were reducing exposure across the precious metals market.
Copper Prices Move Lower
Industrial metals also weakened during Tuesday’s session.
Benchmark copper futures on the London Metal Exchange declined by 1.2% to $13,486.33 per tonne.
US copper futures recorded a larger drop of 2.3%, falling to approximately $6.22 per pound.
