Gold (XAU/USD) traded with mild losses around $4,325 during the early Asian session on Tuesday, marking its lowest level since March 24. The decline comes as expectations for a US Federal Reserve interest rate hike grow, following strong US jobs data that has shifted market sentiment. According to the CME FedWatch tool, traders are now pricing in a 43% probability of a quarter-point rate hike in December, a significant increase from about 14% a month ago [1].
Geopolitical developments in the Middle East also influenced gold prices. Bloomberg reported that Iran and Israel agreed to ease strikes against each other after recent violence, with Iran announcing an end to its military operations against Israel. However, Iran's central military command warned of 'much harsher and more crushing actions' if Israel continues attacks, particularly in southern Lebanon. These ongoing tensions are fueling concerns over inflation and sustaining expectations of elevated interest rates [1].
Gold, traditionally seen as a safe-haven asset during geopolitical uncertainty, is less attractive in a high interest rate environment because it does not yield interest. Investors are closely watching upcoming US Consumer Price Index (CPI) data on Wednesday and Producer Price Index (PPI) data on Thursday for further clues on the Fed's interest rate path [1].
CONCLUSION
Gold prices have edged lower amid rising expectations of a US Fed rate hike and persistent Middle East tensions. The market is now focused on upcoming US inflation data, which could further influence the Fed's policy direction and gold's near-term trajectory.