Gold fell as much as 1.1% before paring losses on Monday, as traders assessed the Federal Reserve's interest rate outlook ahead of the release of minutes from the U.S. central bank's last meeting. The minutes are expected to provide insight into policymakers' thinking on monetary policy.
Market Expectations and Dollar Strength
Swap traders still priced in a 25% chance of a rate hike at the Fed's next meeting in July, following weaker-than-expected labor market data that had previously reduced such bets. The dollar advanced, while higher yields and a stronger U.S. currency typically act as headwinds for gold, which pays no interest and is priced in the greenback.
Spot gold declined 0.9% to US$4,140.32 an ounce as of 10:12 a.m. in New York. The Bloomberg Dollar Spot Index, a gauge of the U.S. currency, rose 0.2%.
Analyst Perspectives on Rate Hike Risks
“Gold traders remain undecided about the short term direction, with the rate hike ghost still hanging over the market,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “I believe the risk of a hike is near zero but as long the market continues to price that risk, the upside potential is limited and at best the market will continue to consolidate.”
After climbing to a record in January, gold has come under pressure on speculation that the Fed may raise interest rates later this year to combat stubborn inflation, even as energy prices have eased following an interim U.S.-Iran peace deal.
Broader Economic Factors
“While lower oil prices have eased concerns over energy-driven inflation, markets continue to monitor broader price pressures stemming from AI-related investment demand and weather-related supply disruptions,” said Manav Modi, commodities analyst at Motilal Oswal Financial Services.
Silver edged down 1%, while platinum was lower and palladium rose. The precious metals market remains sensitive to shifting expectations for U.S. monetary policy and global economic conditions.
