Gold prices showed indecision in early Asian trading on Tuesday as traders prepared for the anticipated rate hike by the U.S. Federal Reserve and awaited monetary policy clues over the next two days.
As of 0119 GMT, spot gold experienced a slight uptick of 0.2%, reaching $1,958.20 per ounce, while U.S. gold futures declined marginally by 0.1% to $1,959.90.
The strength of the dollar index, which reached a near-two-week peak, weighed on gold as a stronger dollar tends to make bullion more expensive for buyers holding other currencies.
With markets fully pricing in quarter-point rate hikes from both the Federal Reserve and the European Central Bank, the focus now shifts to the messages delivered by Fed Chair Jerome Powell and ECB President Christine Lagarde regarding their future plans and the upcoming September meetings.
Gold, being highly sensitive to rising interest rates, often faces downward pressure as higher rates increase the opportunity cost of holding non-yielding bullion.
A key event leading up to this point was the release of a closely-watched purchasing managers’ survey on Monday, which revealed a slowdown in U.S. business activity, while Europe experienced a greater-than-expected shrinkage in July. These developments imply that both central banks could be nearing the conclusion of their respective rate-hike cycles.
Meanwhile, in China, leaders made assurances to enhance policy support for the economy as it continues to navigate a challenging post-COVID recovery. The focus is on boosting domestic demand, but details regarding the measures remain scant. Some analysts speculate that policymakers might exercise caution in delivering aggressive stimulus due to concerns about the potential rise in debt risks.
The performance of other precious metals also witnessed slight movements. Spot silver rose 0.2%, reaching $24.42 per ounce, platinum increased by 0.3% to $959.24, and palladium experienced a more substantial jump of 0.9%, reaching $1,281.86.
As the two-day Federal Reserve meeting unfolds, market participants are closely monitoring the outcomes and statements from policymakers, which will likely shape the direction of gold and other precious metals in the short term. Traders and investors are also assessing global economic conditions, especially in the context of the ongoing recovery from the COVID-19 pandemic, which will have broader implications for the precious metals market moving forward.