Gold slips as Fed set to announce rate decision today

Gold prices edged lower on Wednesday as investors braced for the Federal Reserve's interest rate decision later in the day, with the precious metal weighed down by a firm U.S. dollar hovering near a one-month high.

Fed Decision Looms Over Gold

Spot gold fell approximately 0.3% to trade near $4,019–$4,028 per ounce in early Asian trading, extending losses from Tuesday, when prices dropped to their lowest level since July 21, according to Reuters. The decline came as the dollar held firm ahead of the Federal Open Market Committee's announcement, scheduled for 2 p.m. ET.reuters

The two-day FOMC meeting, which began Tuesday, has injected uncertainty into precious metals markets. While most economists polled by FactSet expect the Fed to hold its benchmark rate steady in the 3.5%–3.75% range for a fifth consecutive meeting, futures markets have priced in roughly a one-in-three chance of a rate hike, according to The Wall Street Journal. CBS News reported that the CME FedWatch tool showed a 38% likelihood of a rate increase, up from 12% a week earlier.cbsnews+1

Competing Forces

A rate hike would strengthen the dollar and raise the opportunity cost of holding non-yielding gold, making the metal less attractive to investors. Fed Chair Kevin Warsh has signaled that "prices are too high," and nine of the central bank's 19 policymakers indicated at the June meeting that they believe a rate increase will be necessary this year.reuters

Geopolitical tensions in the Middle East have provided a floor for gold prices in recent weeks. The ongoing U.S.-Iran conflict pushed gold to a two-week high on July 22, though analysts at MUFG Research noted that easing tensions late last week reduced some safe-haven demand, with gold falling as much as 0.8% to around $4,040 per ounce on Monday.canadianminingreport+1

What Comes Next

On Tuesday, gold fell 1.2% to $4,026.49 by the afternoon session as the dollar strengthened, Reuters reported. CNBC noted that U.S. gold futures for August delivery also declined. The market now awaits not only the rate decision itself but also the accompanying policy statement and press conference for signals about whether a hike could come at the September or October meetings. Rising oil prices linked to the Middle East conflict have complicated the Fed's calculus by fueling inflation concerns, which could keep the central bank on a hawkish path even if it holds rates steady today.cnbc+2