Gold retreats as hawkish Fed comments reinforce policy tightening bets

Gold prices slipped on Wednesday amid a stronger dollar and hawkish remarks from US Federal Reserve officials, fueling expectations of tighter monetary policy. The spot price of gold dropped 0.9% to $4,316.78 per ounce, while US gold futures for December delivery declined 0.5% to $4,354. The dollar reached its strongest level in two months, making gold priced in other currencies costlier.

Ole Hansen, head of commodity strategy at Saxo Bank, stated that Fed comments and their influence on US rates, bond yields, and the dollar are the primary drivers for short-term traders. Richmond Fed President Tom Barkin mentioned that rate hikes and the prospect of more hikes could dampen business inflation expectations and slow price increases without slowing down economic activity.

The Federal Reserve had raised its benchmark rate by 25 basis points to 3.75%-4% earlier in the week, and signaled a potential increase before the end of the year.

Despite gold's reputation as a hedge against inflation, higher interest rates can diminish its appeal as investors shift towards interest-bearing assets. Traders currently hold a 53% probability of a rate hike in October, according to the CME FedWatch Tool. Geopolitical tensions, such as US President Donald Trump's warning about potential military action against Iran, also contribute to market volatility.

In the long term beyond 2026, BMI analysts anticipate a decline in gold prices due to increased risk-on sentiment as the global economy recovers later in the decade. Other precious metals, including silver, platinum, and palladium, also experienced declines with silver falling 2.5% to $65.39 per ounce, platinum losing 2.1% to $1,794.28, and palladium dropping 1.7% to $1,285.65.