Gold retreats as dollar, yields firm ahead of Fed rate hike

GOLD PRICES dropped as much as 1% on Tuesday as the dollar and Treasury yields firmed, and investors squared positions ahead of a widely expected large interest rate hike by the US Federal Reserve this week.

Spot gold was down 0.7% at $1,664.19 an ounce by 1:46 p.m. ET (1746 GMT), lingering near a 29-month low hit last week.

US gold futures settled 0.4% lower at $1,671.10.

The Fed is expected to hike interest rates by at least 75 basis points (bps) at the conclusion of its two-day policy meeting on Wednesday.

Other central banks are also expected to keep tightening monetary policy in the face of surging inflation. Sweden lifted interest rates by a full percentage point on Tuesday. Britain, Norway, Switzerland and Japan also hold monetary policy meetings this week.

“A 100 bps hike would likely pressure gold prices lower, whereas a widely anticipated 75 bps could see some short-covering activity amid a relief rally,” Standard Chartered said in a note.

High interest rates usually dim bullion’s appeal as they translate to an increased opportunity cost of holding the asset.

The dollar held firm near a two-decade high, making bullion more expensive for other currency holders. The US two-year yield hit an almost 15-year high.

Although, “when global recessionary fears really become the focal point for markets as everyone has become more aggressive with their tightening cycles, that’s when gold will have an opportunity,” Edward Moya of OANDA said.

In other precious metals, spot silver slipped 2.2% to $19.17 per ounce; platinum gained 0.1% to $918.55; and palladium dropped 3.6% to $2,145.44. —