Gold prices remained subdued near multi-week lows during Tuesday's Asian deals as investors adopted a cautious stance ahead of the Federal Reserve’s monetary policy decision due later on Wednesday (Thursday AEST).
At 3:15 pm AEST (5:15 am GMT), spot gold edged 0.1% higher to US$4,601.03 per ounce, recovering modestly but remaining under pressure following the previous session’s decline of 1.8%.
The sell-off in gold was largely driven by a renewed surge in oil prices, which has been underpinned by ongoing geopolitical tensions between the United States and Iran.
The situation intensified after U.S. President Donald Trump expressed dissatisfaction with Iran’s latest proposal aimed at ending the conflict, dampening hopes for a near-term resolution.
Rising oil prices have reinforced concerns about persistent inflation, prompting markets to reassess the outlook for U.S. monetary policy. Elevated inflation expectations tend to support a more hawkish stance from the Federal Reserve, reducing the appeal of non-yielding assets such as gold, which typically performs better in a low-interest-rate environment.
Attention now turns squarely to the Fed’s policy outcome, with markets widely expecting the central bank to leave interest rates unchanged within the 3.5% to 3.75% range.
However, the focus will be on the tone of outgoing Chairman Jerome Powell’s remarks, as investors seek clues on the potential direction of rates in the months ahead.
Powell’s assessment of inflation, particularly in the context of heightened Middle East tensions, will be closely scrutinised for signals on future policy moves. Any indication that the Fed remains cautious and committed to a data-dependent approach, with an emphasis on supporting the labour market, would likely be interpreted as dovish.
Such an outcome could weigh on the U.S. dollar and provide support for gold prices.
Market participants are also mindful that this meeting marks Powell’s final post-policy press conference, adding further significance to his remarks.
Kevin Warsh is set to assume the role of Federal Reserve Chair from 15 May, signalling an upcoming transition in U.S. monetary policy leadership.
