Gold weakens amid pressure from growing Fed rate hike bets

Gold prices fell on Tuesday, dipping under $4,300 per ounce, as surging oil prices stirred inflation concerns prior to the Federal Reserve's expected monetary policy announcement this week. Spot gold decreased by 0.6% to $4,271.32 an ounce and gold futures slipped 1.0% to $4,310.90 an ounce at 05:47 ET. The metal hit a five-week low on Monday due to Middle East tensions and rising oil prices nearing four-month highs.

Concerns grew that soaring energy costs could spark inflation, leading central banks, including the Fed, to hike interest rates in response. The probability of a rate increase at the Fed's gathering on Wednesday stands at 92%, according to CME FedWatch, up from 59% a week earlier. This has pushed U.S. 10-year Treasury yields above 5% and near their highest level in nearly two decades.

Simultaneously, the U.S. dollar has strengthened. Higher borrowing costs typically dampen gold's appeal, while a robust dollar can diminish its attractiveness to international buyers. Oil prices surged after Saudi Arabia closed its east-west pipeline following attacks by Iran-backed Houthi militants in Yemen. This 1,200-kilometer pipeline, which carries millions of barrels of oil daily, is expected to be offline for three to five weeks while damage is repaired.

Some markets remain uncertain whether policymakers will endorse or refute these inflationary expectations, as the outcome may influence future moves in currencies, equities, and gold.