Gold falls to two-week low as dollar strengthens on US rate-hike bets

Gold prices extended losses on Wednesday, falling to their lowest level in nearly two weeks as the dollar strengthened on expectations of further US interest rate increases, while investors assessed conflicting statements from the United States and Iran on their peace negotiations.

Spot gold fell 0.5% to $4,088.97 per ounce by 0609 GMT, after earlier touching its lowest level since June 11. US gold futures for August delivery declined 1% to $4,106.30.

The dollar rose to a more than one-year high, making gold costlier for buyers using other currencies.

Market expectations for US monetary policy also weighed on bullion. According to the CME FedWatch Tool, traders are now pricing in three Federal Reserve rate hikes this year, compared with expectations of one increase before last week’s Federal Reserve meeting.

Gold is usually viewed as a hedge against inflation, but higher interest rates reduce its appeal because the metal does not offer a yield.

Investors are now awaiting US Personal Consumption Expenditures data, the Federal Reserve’s preferred inflation gauge, due on Thursday, for further guidance on the policy outlook.

The market was also tracking developments in US-Iran peace talks.

US President Donald Trump said on Tuesday that Iran had agreed to nuclear inspections into “infinity”. Tehran said it had not made such a concession, raising questions over the terms of the peace deal.

The two sides also differed over a provision related to Iran’s access to funds frozen in overseas accounts.

Ilya Spivak, head of global macro at Tastylive, said gold remained under pressure from the inflation and interest rate outlook that had emerged during the war.

Bullion has fallen about 23% since the start of the US-Israeli war on Iran in late February, as inflation concerns have increasingly translated into expectations of Federal Reserve rate hikes.

Spivak said a sustained break below the $4,000 level could shift market focus towards $3,800 and possibly $3,500.

Among other precious metals, spot silver rose 0.2% to $62.17 per ounce, platinum gained 0.1% to $1,652.55 and palladium edged up 0.1% to $1,238.34.