Gold prices fell on Tuesday as the US dollar strengthened ahead of a Federal Reserve meeting at which the US central bank is expected to raise interest rates for the first time this year.
The looming Fed meeting has helped to push gold down four per cent from the one-and-a-half year high reached in January.
Higher US interest rates are gold-negative because they raise bond yields, reducing the appeal of non-yielding bullion.
They also tend to boost the dollar, making gold more expensive for users of other currencies.
Spot gold was trading 0.3 per cent lower at $US1,312.16 per ounce, while the dollar strengthened against a basket of currencies and US bond yields rose .
US gold futures for April delivery settled down $US5.90, or 0.5 per cent, at $US1,311.9 per ounce.
‘Everyone’s wondering how many dots will be on the plot for 2018. The market has priced in up to three hikes,’ said Rob Haworth, senior investment strategist for US Bank Wealth Management.
The Fed will likely take a cautious approach on raising interest rates, helping lift gold prices, said Saxo Bank analyst Ole Hansen.
‘With inflation not really picking up, rising geopolitical risk, trade wars looming and a flattening yield curve – this is not a backdrop that gives the Fed any urgent need to step up the speed of rate hikes,’ Hansen said.
Gold prices have tended to fall ahead of Fed rate increases in recent years and to rise after them.
As gold has fallen, funds have scaled back bets on higher prices, with the net long position in Comex gold falling to about 136,000 contracts from almost 210,000 in late January.
That gives investors more space to buy gold, which could help prices to recover, MKS trader Sam Laughlin said.
Holdings of gold in exchange-traded funds (ETFs) tracked by Reuters have meanwhile jumped to the highest level since November 2016.
‘That tells me longer-term investors have not given up their belief in higher prices,’ Saxo Bank’s Hansen said.
Technical support for gold was at its 100-day moving average of $US1,305 an ounce.