Gold retreats on stronger dollar; traders brace for Fed

Gold prices declined on Tuesday as the US dollar strengthened, prompting investors to gaze ahead to the Federal Reserve's policy decision for hints on interest-rate prospects, with markets anticipating the central bank to hold rates steady this week. Spot gold slipped 0.5 percent to $3,995.89 per ounce by 09:29 GMT. US gold futures for December delivery dropped 0.71 percent to $4,009.60 per ounce.

The US dollar rose 0.3 percent against a basket of major currencies, reaching a near two-week peak and making dollar-priced gold pricier for holders of other currencies. Gold continues to face pressure from a stronger US dollar and rising Treasury yields, as ongoing inflation worries, fueled by high oil prices, fuel expectations that the Federal Reserve will maintain a tight monetary policy stance, according to Ricardo Evangelista, ActivTrades director and CEO.

Crude oil prices surged on Tuesday, with Brent crude hovering around $116 a barrel, as fresh Houthi assaults on Saudi Arabia underscored persistent supply risks in the Middle East. Central bankers have hinted they will not raise rates this week, but with persistent inflation concerns still on the table, investors believe the pause will not endure long.

The Fed is projected to keep interest rates unchanged on Wednesday but provide signals on whether another rate increase might occur in December, with traders pricing an 80% chance of a hike in December, per the CME's FedWatch Tool. The trajectory for global monetary policy remains a hot topic as other major central banks convene this week.

The Bank of Japan's gathering follows the Fed's, the European Central Bank is slated to keep rates unchanged on Thursday, and the UK's budget is released on Wednesday. Higher interest rates raise the opportunity cost of owning non-yielding gold. Investors are also awaiting US Personal Consumption Expenditures data due on Thursday, a metric the Fed scrutinizes most closely while targeting 2 percent inflation.

A firm stance from the Fed or sharper-than-anticipated PCE inflation could drive gold prices below $4,000, potentially as low as $3,900, Evangelista added. Among other metals, spot silver fell 1.4 percent to $53.16 per ounce, platinum lost 1.8 percent to $1,499.60 per ounce, and palladium dropped 2.6 percent to $1,022.87 per ounce.