Gold prices remained lower on Tuesday, July 28, as traders evaluated the likelihood of an interest rate hike by the Federal Reserve. The yellow metal edged below the $4,050 level during the Asian session, failing to sustain acceptance above $4,100 the previous day. This weakening was largely attributed to a strengthening US dollar, supported by geopolitical factors ahead of the crucial two-day FOMC policy meeting. Investors are keenly anticipating signals about the Fed's future policy path, which will significantly influence dollar demand and provide directional impetus for gold.
Globally, gold futures saw a drop of nearly 1%, with contracts for August delivery on the Multi Commodity Exchange trading lower by $1,213, or 0.85%, at $141,850 per 10 grams. In international markets, spot gold declined by $43 per ounce to $4,050, down from $4,093 in the prior session. This mirrored steep losses in Pakistan's bullion markets, where 24-karat gold plunged by $4,300 per tola, reaching $427,436, and 10 grams fell by $3,687 to $366,457. Similarly, in Bangalore, India, 24-karat gold decreased by $172 per gram to $14,417, with 22-karat and 18-karat gold also experiencing declines.
The decline in gold prices was further amplified by easing geopolitical concerns and profit-taking in international markets. Improved investor appetite for risk assets also diminished demand for traditional safe-haven instruments like gold. Analysts at Tata Mutual Fund noted that uncertainties surrounding a US-Iran peace deal, the Fed's rate dilemma, a stronger dollar, and higher yields could keep gold prices within a current range, providing a base for long-term accumulation. However, increased probabilities for a Fed rate hike might exert short-term pressure on gold due to higher yields.
Despite the recent decline, gold prices remain at historically elevated levels, reflecting ongoing global economic and financial market uncertainties. Traders are adopting a cautious approach, refraining from aggressive bets until the outcome of the FOMC meeting. The consensus suggests waiting for strong follow-through selling and acceptance below the $4,000 psychological mark before initiating new bearish positions on the XAU/USD pair. The US dollar's strength against the non-yielding yellow metal is expected to continue impacting gold's trajectory.
The market's expectation for a Fed rate hike has slightly eased, with traders cutting their bets to a 31.5% probability, down from over 36% a day prior, according to CME Group data. This softening of rate hike expectations, partly influenced by a drop in oil prices, has helped to lower Treasury yields. However, any actual rate hike would slow the economy by making borrowing more expensive for households and businesses, potentially chilling sectors like housing, where long-term mortgage rates have already hit their highest in nearly a year.
