Gold prices fell sharply on Tuesday as a stronger US dollar and rising expectations of further Federal Reserve interest rate increases reduced demand for the precious metal.
Progress in US-Iran negotiations also eased geopolitical concerns, weakening gold’s appeal as a safe-haven asset.
Gold Prices Fall Nearly 2%
Spot gold declined 1.8% to $4,119.17 per ounce by 06:42 ET.
Meanwhile, US gold futures dropped 1.5% to $4,139 per ounce.
The decline reversed part of Monday’s 0.7% gain, which had been supported by optimism surrounding diplomatic talks between the United States and Iran.
Strong US Dollar Pressures Gold
The US Dollar Index remained close to the 13-month high reached last week.
The dollar has gained support from the Federal Reserve’s increasingly hawkish monetary policy outlook. Last week’s meeting was the first chaired by Kevin Warsh.
A stronger dollar generally makes gold more expensive for investors using other currencies. This can reduce international demand for the metal.
Fed Rate Hike Expectations Increase
Federal Reserve policymakers kept interest rates unchanged within a range of 3.50% to 3.75%.
However, updated projections showed growing support for at least one additional rate increase before the end of the year.
Futures markets are now pricing in approximately a 90% probability of a December rate hike.
Some investors believe the Fed could raise rates more than once as officials remain concerned about persistent inflation.
Higher interest rates tend to pressure gold because the metal does not generate interest or dividend income. Rising bond yields can therefore make income-producing assets more attractive.
US-Iran Talks Reduce Safe-Haven Demand
Investors also continued to monitor negotiations between Washington and Tehran.
The United States granted a 60-day sanctions waiver covering some Iranian oil sales following initial talks in Switzerland.
US officials described the discussions as constructive, raising hopes that diplomatic progress could reduce tensions across the Middle East.
As geopolitical risks decline, investors may become less inclined to hold traditional safe-haven assets such as gold.
Iran Conflict Had Increased Inflation Concerns
Although gold often benefits during periods of geopolitical instability, investors have recently focused more closely on the inflationary impact of the Iran conflict.
The fighting pushed oil prices significantly higher earlier this year. Rising energy costs increased concerns that inflation could remain elevated.
Persistent inflation may encourage central banks to keep monetary policy restrictive for longer or introduce further interest rate increases.
This outlook has limited gold’s ability to benefit from geopolitical uncertainty.
PCE Inflation Data Comes Into Focus
Markets are now waiting for 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 measure of inflation.
A stronger-than-expected reading could reinforce expectations for additional rate hikes and place more pressure on gold prices.
By contrast, weaker inflation data could reduce tightening expectations and provide some support for the precious metal.
Silver and Platinum Prices Decline
Other precious metals also recorded significant losses.
Silver fell 4.4% to $62.2385 per ounce, while platinum declined 1.6% to $1,656.60 per ounce.
The stronger dollar and changing interest rate outlook weighed broadly on the metals market.
Copper Prices Move Lower
Copper prices also declined during Tuesday’s session.
Benchmark copper futures on the London Metal Exchange dropped 1.2% to $13,486.33 per metric ton.
US copper futures fell 3% to $6.1688 per pound.
The losses reflected broader weakness across commodity markets as investors reassessed the outlook for interest rates, inflation and global risk appetite.
