Gold prices continued their downward trend on Tuesday, falling 0.2% to trade near three-week lows, while managing to hold above the critical $2,600 mark.
The safe-haven asset has been under pressure for six consecutive days, driven by diminishing expectations of an aggressive interest rate cut by the Federal Reserve. The U.S. dollar hovered near a seven-week high, further weakening demand for gold.
Reduced bets on a larger Fed rate cut have been a major driver behind gold’s recent losses. According to the CME Group’s FedWatch Tool, markets are now pricing in an 85% likelihood of a modest 25-basis-points cut at the Fed’s November meeting, compared to previous expectations of a more significant 50-bps reduction.
In addition to monetary policy factors, geopolitical developments have also impacted the market. Speculation of a possible ceasefire between Hezbollah and Israel has undermined gold's safe-haven appeal.
Hezbollah hinted at being open to a ceasefire without insisting on the end of the Gaza conflict as a condition, easing fears of a broader regional escalation.
While gold prices remain under pressure, the drop below $2,630 found support ahead of the $2,600 level as traders await further signals from the Federal Reserve.
The release of the minutes from the September Federal Open Market Committee (FOMC) meeting, due later on Wednesday, will be scrutinised for clues on future monetary policy moves.
Additionally, the upcoming US Consumer Price Index (CPI) on Thursday and the Producer Price Index (PPI) on Friday are expected to provide further insight into inflation trends and the Fed's rate path.
Several Fed officials have weighed in on the economic outlook, maintaining that rate cuts will depend on continued progress in cooling inflation.
New York Fed President John Williams and Fed Governor Adriana Kugler both noted that future policy decisions will remain data-driven.
Boston Fed President Susan Collins reiterated that while inflation is slowing, the US economy and labor markets remain strong, necessitating a cautious approach to policy easing.
Despite these cautious views, the yield on the benchmark 10-year U.S Treasury bond remains above 4%, maintaining pressure on gold, which does not provide a yield.
This dynamic, combined with geopolitical developments, has created a volatile environment for the precious metal.
