Gold Loses Ground To Near $4,100 As Inflation Concerns, Fed Rate Hike Bets Build

Gold price (XAU/USD) loses momentum to around $4,100 during the early Asian session on Wednesday. The precious metal extends the decline as traders cement views on the US Federal Reserve (Fed) hiking interest rates this year.

Gold has faced some selling pressure since the outbreak of the US-Iran war on February 28. The recent agreement between Washington and Tehran has eased pressure on energy prices, but the inflationary impact may linger, leading to solidified market views on the Fed raising rates this year to tackle elevated costs.

Also, an unexpectedly hawkish Fed meeting chaired by Kevin Warsh last week boosted expectations for a year-end interest rate hike, contributing to the yellow metal’s downside. It’s worth noting that Gold is often used as a hedge against inflation but does not yield interest, making it less attractive when interest rates are high.

Traders are now pricing in nearly an 86.1% chance of a Fed hike in December, up from 61% before last week’s FOMC meeting, according to the CME FedWatch tool.

“Fed repricing, together with resilient US macro data, has played the primary role in pushing gold lower,” said Deutsche Bank AG analyst Michael Hsueh. The bank cut its price forecast to $4,300 for the third quarter (Q3), down by more than a fifth from the prior outlook and to $4,800 for the final three months of the year.

The US Personal Consumption Expenditures (PCE) Price Index (PCE) data for May will be in the spotlight later on Thursday. This report could offers some hints about the US interest rate path this year.