Gold experienced follow-through selling after failing to hold above $4,100, weakening below the $4,050 level during the Asian session on Tuesday. This decline comes as the US dollar strengthens and investors turn their attention to the Federal Reserve's upcoming policy meeting. Futures contracts for August delivery declined by $1,213, or 0.85%, to $141,850 per 10 grams on the Multi Commodity Exchange.
The downside in gold appears limited for now, as US dollar bulls are pausing ahead of the crucial two-day FOMC policy meeting. Market participants are closely watching for signals on future interest rate adjustments, as higher rates typically reduce the appeal of non-yielding assets like gold.
Geopolitical risks in the Middle East, including drone attacks in Saudi Arabia, Jordan, and Iraq, and a blockade announced by Yemen's Houthis in the Bab el-Mandeb Strait, continue to underpin the US dollar and exert pressure on gold. However, a slight decline in US Treasury yields has offered some support to gold prices, limiting further losses. Oil prices also eased, helping calm inflation fears to some extent.
Analysts predict gold's future direction will heavily depend on US monetary policy, oil price movements, and developments in Middle East geopolitical tensions. While geopolitical developments can occasionally support safe-haven demand, expectations surrounding US interest rates remain the primary driver for gold prices. Spot gold fell 0.7% to $4,046.87 an ounce, while West Texas Intermediate crude fell 5.2% to $78.33 a barrel.
