Gold Drops as Firm Dollar, Fed Uncertainty Weigh

Gold prices fell about 1% to around $4,030 an ounce on Tuesday as a stronger US dollar and mounting uncertainty ahead of Wednesday's Federal Reserve policy decision weighed on the precious metal. The dollar hovered near a four-week high as markets priced in more than a one-third chance of a rate hike, an unusually high degree of uncertainty this close to a Fed meeting despite repeated calls from President Donald Trump for lower interest rates. Traders also continue to price in roughly an 80% probability of a rate hike in September, reinforcing expectations that borrowing costs could remain elevated. Meanwhile, oil prices edged lower as hopes for easing tensions between the US and Iran reduced demand for safe-haven assets. On Monday, Trump said Washington was holding "good talks" with Iran and that a deal to resolve the conflict remained possible, though he warned military strikes could resume if negotiations fail.

Gold slipped to around $4,050 an ounce on Tuesday, giving back the previous session’s gains amid lingering concerns that the Federal Reserve could raise interest rates this week. Markets are currently pricing in an over one-third chance of a Fed rate increase on Wednesday, an unusually high level of uncertainty this close to a Fed meeting compared with recent years. Citadel Securities also said it expects the Fed to raise rates this week to reinforce Chairman Kevin Warsh’s credibility in fighting inflation after the central bank chief repeatedly pledged to restore price stability. Gold also came under pressure even after President Donald Trump said the US was engaged in "good talks" with Iran to end the Middle East conflict, pushing oil prices lower and easing concerns over inflation and interest rate hikes. However, Trump warned that the US is prepared to resume strikes against the Islamic Republic if negotiations fail.

Gold steadied near $4,100 an ounce on Tuesday, retaining most of the previous session’s gains after President Donald Trump said the US was engaged in "good talks" with Iran to end the Middle East conflict, sending oil prices lower and easing concerns over inflation and interest rate hikes. However, Trump also warned that the US is ready to resume strikes against the Islamic Republic if negotiations break down. The US suspended its attacks on Iran late Friday following nearly two weeks of hostilities, while Tehran also halted retaliatory strikes against US bases in neighboring countries. Investors are also awaiting the Federal Reserve’s policy decision this week, with policymakers widely expected to leave interest rates unchanged. While some traders continue to speculate about a possible rate hike this week amid renewed inflationary pressures, most expect the next increase to come in September.