Gold prices extended their decline during Tuesday's Asian trade as a stronger United States dollar and growing expectations of further Federal Reserve policy tightening weighed on investor demand for the precious metal.
By 3:35 pm AEST (5:35 am GMT), spot gold was down 1.5% at US$4,127.50 per ounce, resuming its downward trend after a 0.7% recovery in the previous session.
The precious metal remained under pressure as sellers continued to emerge near the US$4,200 level, limiting gains despite signs of progress in negotiations between the United States and Iran.
Market sentiment has increasingly shifted in favour of the U.S. dollar, which climbed to fresh yearly highs as investors reassessed the outlook for U.S. monetary policy, amid growing expectations that the Federal Reserve could raise interest rates again before the end of the year.
According to the CME Group FedWatch Tool, markets are currently pricing an 87% probability of a rate hike in December, up sharply from 61% before last week's Federal Reserve meeting.
The prospect of higher interest rates has boosted demand for the U.S. dollar while reducing the appeal of non-yielding assets such as gold, which becomes relatively less attractive when bond yields and cash returns rise.
Investors are now looking ahead to the release of preliminary June purchasing managers' index (PMI) data from S&P Global later in the session for additional clues on the strength of the U.S. economy.
The Manufacturing PMI is expected to ease slightly to 54.8 in June from 55.1 in May, while the Services PMI is forecast to edge higher to 51.0 from 50.7.
Stronger-than-expected readings could reinforce expectations that the Federal Reserve will maintain a restrictive policy stance, potentially supporting the U.S. dollar further and creating another headwind for gold prices.
