Spot gold and silver prices fell in early US trading on Wednesday as renewed tensions in the Middle East drove crude oil higher and raised concerns about persistent inflation ahead of the Federal Reserve’s interest-rate decision.
At the time of writing, spot gold traded near $4,049.60 an ounce, down 0.27%, while silver slipped to around $53.87 an ounce, losing 0.90%.
Gold gave back some of Tuesday’s gains as investors weighed the prospect of another rate increase in December, while silver remained under pressure amid concerns over industrial demand and higher borrowing costs.
As for the equity markets, US stocks opened higher on Wednesday as semiconductor shares rallied following strong earnings from South Korean chipmaker SK Hynix.
Fed’s guidance remains key
Markets are largely positioned for the Fed to leave rates unchanged on Wednesday, although expectations for further tightening remain elevated.
Traders are assigning an approximately 84% probability to at least one additional rate increase by December.
Elevated Treasury yields, a firm US dollar and concerns about tighter monetary policy continue to weigh on bullion, limiting its appeal despite ongoing geopolitical uncertainty.
The US 10-year Treasury yield is 5.010%, rising ahead of the Federal Reserve’s interest rate decision
Policymakers are widely expected to maintain the federal funds target range at 3.75% to 4.00%.
Investors will instead focus on the accompanying statement and Warsh’s assessment of inflation, employment conditions and the possibility of another increase in December. The dissent in the committee, if any, will also be closely watched.
Less restrictive Fed guidance could reduce expectations for a December rate increase, potentially supporting gold through lower Treasury yields and a weaker dollar.
Persistent price pressures and a hawkish policy message, however, could reinforce expectations for further tightening and put additional pressure on bullion.
Oil prices add further pressure
The security situation around the Strait of Hormuz and the broader US-Iran conflict remains a key source of volatility in energy markets.
Renewed attacks involving Iran-aligned Houthi forces have threatened to undermine recent diplomatic efforts and raise concerns about energy infrastructure and commercial shipping.
Negotiations have yet to produce a confirmed settlement between Washington and Tehran, while threats to shipping and energy infrastructure continue to complicate efforts to restore normal traffic through the Strait of Hormuz.
Oil prices rebounded on Wednesday, reversing much of the previous session’s decline as the prospect of further escalation sustained a geopolitical risk premium in energy markets.
For gold, the renewed threat of military escalation can support safe-haven demand, but higher oil prices also risk intensifying inflation and strengthening expectations for further Fed tightening.
These competing forces have limited bullion’s response to geopolitical uncertainty.
Silver faces similar pressure from interest-rate expectations, while its industrial exposure leaves it vulnerable to higher energy costs and concerns about a slowdown in manufacturing activity.
The post Gold dips below $4050 ahead of expected Fed pause amid rising oil appeared first on Invezz