The USD rose sharply as the market expected the US Federal Reserve (Fed) to maintain a tougher stance in monetary policy. This development put pressure on the non-profit precious metal.
Spot gold fell 1.8% to 4,116.07 USD/ounce at 9:36 GMT, after at one point hitting its lowest level since June 11, at 4,090.27 USD/ounce. August gold futures in the US also fell 1.6% to 4,133.7 USD/ounce.
For the precious metals market, the Fed's tough stance to respond to inflationary pressure due to rising energy costs related to the conflict in Iran has almost overshadowed the positive impact from the recent cooling of oil prices after peace talks between the US and Iran in Switzerland on Monday.
The upward momentum of the USD, reinforced by the Fed's tougher stance at last week's meeting, is creating a drag on gold prices," said Ricardo Evangelista, an analyst at ActivTrades.
According to Mr. Evangelista, in the medium and long term, gold prices are likely to be mainly dominated by monetary policy, in which the Fed and the strength of the USD continue to be particularly important factors.
The USD has risen to its highest level since May last year, after nearly half of Fed officials at last week's meeting said they currently expect interest rates to rise this year.
Traders also increased their bets on the possibility of interest rates rising this year. According to CME Group's FedWatch tool, the probability of the Fed raising interest rates in September has increased to about 68%, compared to 29% last week.
Investors are waiting for US Personal Consumption Expenditures (PCE) data - an inflation measure prioritized by the Fed - expected to be released this week to find more signals about monetary policy orientation.
The gold market previously aimed for the psychological milestone of 4,000 USD/ounce as a support zone after the peace agreement in Iran, but the psychology shifted to selling as prices increased," said Suki Cooper, an analyst at Standard Chartered Bank, in a report.
Meanwhile, analyst Michael Hsueh of Deutsche Bank said that according to the adjusted base scenario, this bank forecasts gold prices may reach 4,800 USD/ounce in the fourth quarter, consistent with the possibility of the Fed maintaining interest rate maintenance for a long time. However, in the risk scenario when the market values the possibility of the Fed raising interest rates 3-4 times, gold prices may fall to 3,800 USD/ounce.
The strengthening USD also put pressure on other precious metals. Spot silver prices fell 4.4% to 62.34 USD/ounce; platinum fell 2.5% to 1,637.39 USD/ounce; while palladium fell 1.3% to 1,249.13 USD/ounce.
