Gold prices extended losses on Wednesday, pushing the metal closer to the psychologically important $4,000-per-ounce level as a firmer U.S. dollar and heightened expectations for Federal Reserve rate increases lowered bullion's appeal.
Spot gold fell 1.2% to $4,062.72 an ounce by 23:55 ET (03:55 GMT). U.S. Gold Futures were down 1.7% at $4,079.87. The move continued a recent run in which bullion has fallen in five of the last six sessions and suffered three consecutive weekly declines.
Market participants pointed to a stronger dollar as a key headwind. The DXY climbed to a fresh 13-month high on Wednesday as investors boosted bets that the Fed could begin raising interest rates as soon as July, with further increases later in the year. A rising dollar makes gold more expensive for holders of other currencies, while the prospect of higher interest rates raises the opportunity cost of maintaining positions in a metal that does not pay interest.
Traders have revised their probabilities for upcoming Fed action in response to recent communications from officials. Markets are pricing in roughly a 70% probability of a rate hike by September, and are fully pricing in another increase by December.
Commenting on the dynamic between currency strength and safe-haven demand, ING analysts said: "A stronger US dollar and expectations that the Fed could keep rates higher for longer outweighed safe-haven support from geopolitical risks."
At the same time, concerns about potential supply disruptions from the Middle East have abated further, removing one source of support for gold. Investors monitored ongoing U.S.-Iran diplomatic efforts after both sides signaled progress toward implementing a broader peace framework that could help normalize energy flows through the Strait of Hormuz. Nevertheless, key uncertainties remain, including disagreement over nuclear inspections and access to frozen Iranian funds.
Analysts noted that geopolitical tensions have not disappeared, but their influence on prices appears overshadowed by monetary policy expectations. "While geopolitical risks remain elevated, gold is likely to trade in line with Fed expectations, leaving prices vulnerable to higher yields and a stronger dollar in the near term," they added.
Market participants are now looking ahead to U.S. Personal Consumption Expenditures (PCE) inflation data due on Thursday for further guidance on the Fed's likely path.
Other precious metals also retreated. Silver edged down 0.2% to $61.44 an ounce after a decline of more than 5% in the previous session. Platinum eased 0.8% to $1,640.88 an ounce.
Market context:
- Spot gold: $4,062.72/oz (down 1.2% as of 23:55 ET / 03:55 GMT)
- U.S. Gold Futures: $4,079.87 (down 1.7%)
- Dollar index: at a fresh 13-month high
- Fed hike probabilities: roughly 70% by September; another increase fully priced by December