Gold prices moved lower on Monday as a stronger U.S. dollar weighed on the precious metal. Investors also continued to assess the possibility of additional Federal Reserve interest rate hikes later this year.
By 09:59 ET (13:59 GMT), spot gold was down 0.7% at $4,347.96 an ounce, while gold futures fell 0.9% to $4,385.70 an ounce.
Gold Prices Fall After Fed Rate Hike
Gold started the week under pressure as markets continued to digest the Federal Reserve’s latest monetary policy decision.
Analysts at ING said investors were evaluating the impact of the Fed’s first interest rate increase since 2023, as well as the possibility of further tightening in the months ahead.
Last week, the Federal Reserve raised interest rates and indicated that additional increases could be necessary before the end of the year.
Policymakers are attempting to control renewed inflationary pressures, particularly those linked to elevated energy costs.
Higher Interest Rates Weigh on Gold
Higher interest rates generally create a challenging environment for gold because the precious metal does not generate interest or yield.
When Treasury yields and other interest-bearing assets become more attractive, investors may have less incentive to hold non-yielding assets such as gold.
Despite these pressures, gold still finished the previous week higher. A decline in crude oil prices helped ease some concerns about energy-driven inflation and provided support for precious metals.
Oil Prices Extend Their Decline
Crude oil prices continued to fall on Monday.
The decline was partly driven by hopes that diplomatic efforts could help reduce tensions surrounding the Iran conflict ahead of this week’s United Nations General Assembly.
Reports of improving oil flows from the Gulf region also helped ease concerns about global energy supplies.
Lower oil prices could eventually reduce inflationary pressure. However, markets remain cautious about how quickly energy costs and broader inflation will moderate.
Fed Officials Keep Rate Hike Expectations Elevated
Comments from Federal Reserve officials have reinforced expectations that interest rates could remain elevated for longer.
ING analysts noted that policymakers continue to express concern about persistent inflation. This has strengthened expectations that additional monetary tightening may still be necessary.
According to the CME FedWatch Tool, traders were pricing in approximately an 88% probability of another Federal Reserve rate hike by December.
Expectations for additional rate increases could remain an important factor for gold prices in the coming months.
Stronger U.S. Dollar Adds Pressure on Gold
The U.S. dollar also strengthened on Monday, creating another headwind for gold.
The U.S. Dollar Index, which measures the greenback against a basket of major global currencies, rose around 0.1% to 100.35.
Gold is primarily priced in U.S. dollars. Therefore, a stronger dollar makes the precious metal more expensive for buyers using other currencies.
This relationship can reduce international demand and place additional pressure on gold prices when the dollar strengthens.
Gold Outlook Remains Tied to Fed Policy
Investors are now closely watching Federal Reserve policy, inflation data, oil prices and movements in the U.S. dollar for clues about gold’s next direction.
Further rate hikes could continue to pressure the precious metal, particularly if Treasury yields and the dollar remain elevated.
However, falling energy prices and any easing of geopolitical tensions could reduce inflation concerns and eventually influence expectations for future Federal Reserve policy.
For now, gold prices remain caught between persistent inflation risks and expectations for further U.S. interest rate increases.
