Gold Prices Consolidate Near Seven-Week Low Amid Fed Rate Hike Concerns

As of 9:30 a.m. ET (1330 GMT), spot gold had increased by 1.1% to $4,157.39 per ounce. The lowest price during Tuesday's session was $4,112.97, only slightly above the seven-month low of $4,110.55 reached on Monday. U.S. gold futures rose by 0.5% to $4,189.60.

Peter Grant, vice president and senior metals strategist at Zaner Metals, noted that Tuesday's increase is "just a correction from yesterday's losses," but added that significant challenges for gold persist. The previous day, gold fell nearly 4%, marking its lowest point since August 5, influenced by a stronger dollar, rising Treasury yields, increasing energy prices, and inflation concerns that heightened expectations for rate hikes.

Grant further stated that high expectations for additional Fed rate hikes are supporting the dollar, and elevated yields are limiting gold's upside potential. Market focus is shifting towards the upcoming PCE inflation data on Wednesday and the jobs report on Friday.

The dollar has gained ground, approaching several-month highs, driven by volatile oil prices and a rapid increase in Treasury yields. A higher dollar can make gold, priced in U.S. currency, more expensive for international buyers, while rising Treasury yields elevate the opportunity cost of holding non-yielding gold. Additionally, surging energy prices could contribute to inflation, prompting central banks to maintain higher interest rates.

Gold is generally viewed as a hedge against inflation, but its attractiveness diminishes in high-interest-rate environments. Currently, there is a 70% probability of a Fed rate hike in October and a 95% likelihood of an increase in December, according to data from CME's FedWatch Tool. Investors are awaiting important economic indicators, including ADP employment figures and PCE data on Wednesday, followed by nonfarm payrolls on Friday.