Gold prices extended their decline on Wednesday, falling toward a two-week low as the U.S. dollar strengthened.
Rising expectations of further Federal Reserve interest-rate increases also reduced demand for the non-yielding precious metal.
Gold Prices Move Closer to $4,000
Spot gold fell 0.5% to $4,090.72 an ounce by 02:41 ET, or 06:41 GMT.
Prices briefly dropped as low as $4,050.60 during early trading, bringing gold closer to the psychologically important $4,000-per-ounce level.
Meanwhile, U.S. gold futures declined 1% to $4,109.50 an ounce.
Bullion has now recorded losses in five of the past six trading sessions. Gold is also coming off three consecutive weekly declines.
Stronger Dollar Pressures Gold
The U.S. dollar index climbed to a fresh 13-month high on Wednesday.
Markets increased their expectations that the Federal Reserve could raise interest rates as early as July. Traders are also pricing in the possibility of another increase later in the year.
A stronger dollar usually weighs on gold because it makes the metal more expensive for buyers using other currencies.
At the same time, higher interest rates increase the opportunity cost of holding gold because bullion does not pay interest or dividends.
Markets Increase Fed Rate Hike Bets
Expectations of tighter U.S. monetary policy have risen since the Federal Reserve’s latest meeting.
Hawkish comments from policymakers have strengthened the view that borrowing costs could remain elevated for longer.
Markets are now pricing in approximately a 70% probability of a rate increase by September. Traders are also fully pricing in another increase before the end of December.
ING analysts said dollar strength and expectations of higher interest rates outweighed gold’s traditional safe-haven appeal.
Easing Middle East Risks Reduce Safe-Haven Demand
Gold also faced pressure as concerns about potential energy supply disruptions in the Middle East continued to ease.
Investors are closely following diplomatic discussions between the United States and Iran.
Both sides have reported progress toward implementing a broader peace framework. Such an agreement could help normalize energy flows through the Strait of Hormuz.
However, several major issues remain unresolved. These include nuclear inspections and Iran’s access to frozen funds held overseas.
Gold Outlook Tied to Federal Reserve Policy
Analysts believe gold prices may continue to follow changes in Federal Reserve expectations.
Although geopolitical risks remain elevated, rising bond yields and a stronger dollar could keep bullion under pressure in the near term.
Any renewed escalation in geopolitical tensions could restore safe-haven demand. However, monetary policy is likely to remain the main driver of gold prices.
Investors Await U.S. PCE Inflation Data
Markets are now preparing for the release of the U.S. Personal Consumption Expenditures price index on Thursday.
The PCE index is the Federal Reserve’s preferred inflation measure. Therefore, the report could provide important clues about the central bank’s next policy decision.
A stronger-than-expected inflation reading could reinforce expectations of further rate hikes and place additional pressure on gold.
However, softer data could weaken the dollar and provide some support for precious metals.
Silver Recovers After Sharp Decline
Silver prices rose 0.5% to $61.92 an ounce after falling by more than 5% in the previous session.
Platinum remained largely unchanged at $1,653.88 an ounce.
Copper prices also moved slightly higher. Benchmark copper futures on the London Metal Exchange gained 0.4% to $13,433.88 per ton.
U.S. copper futures advanced 0.3% to $6.14 per pound.
