Gold Price Falls 2% as Dollar Strengthens and Fed Rate Hike Expectations Rise

TLDR

• Gold fell nearly 2% to $4,117.61 per ounce on Tuesday as the U.S. dollar held near a 13-month high.
• Futures markets now price about a 90% chance of a Fed rate hike in December.
• Progress in U.S.-Iran peace talks gave gold a brief lift the day before, but rate concerns took over.
• Silver dropped 4.3%, platinum fell 2.6%, and copper also declined alongside gold.
• Investors are now watching Thursday’s PCE inflation data for the next signal on Fed policy.

Gold prices fell nearly 2% on Tuesday, weighed down by a stronger U.S. dollar and rising bets that the Federal Reserve will raise interest rates before the end of the year.

Spot gold dropped 1.8% to $4,117.61 an ounce. U.S. gold futures fell 1.6% to $4,135.10. New York futures were also down 1.7% to $4,129.10 in early trading.

The U.S. Dollar Index held near a 13-month high reached last week. A stronger dollar makes gold more expensive for buyers using other currencies, which tends to reduce demand.

Gold had gained 0.7% the session before, lifted by optimism over U.S.-Iran peace talks. That gain quickly reversed as rate expectations moved to the forefront.

Fed Rate Hike Bets Push Gold Lower

Last week’s Federal Reserve meeting, the first chaired by new Fed Chair Kevin Warsh, left interest rates unchanged at 3.50%–3.75%. But updated projections showed growing support among policymakers for at least one rate increase before the end of 2025.

Futures markets are now pricing roughly a 90% probability of a rate hike in December. Some investors expect more than one increase as the Fed keeps its focus on inflation.

Higher interest rates tend to hurt gold because the metal pays no interest. When rates rise, yield-bearing assets become more attractive by comparison.

Analysts at Kotak Neo noted that while lower energy prices could support gold, higher U.S. rates remain a key headwind for the metal.

Iran Talks and Oil Prices in Focus

Diplomatic efforts between Washington and Tehran continued to attract attention. The U.S. granted a 60-day sanctions waiver on some Iranian oil sales after initial talks in Switzerland. U.S. officials described the early discussions as constructive.

The Iran conflict earlier this year pushed oil prices sharply higher, fueling inflation concerns. That raised fears that central banks, including the Fed, would need to keep rates elevated for longer.

Gold is often seen as a hedge against inflation and geopolitical risk. But investors have been more focused recently on the monetary policy outlook than on the conflict itself.

Metals Broadly Weaker

The selloff was not limited to gold. Silver fell 4.3% to $62.29 per ounce. Platinum dropped 2.6% to $1,639.60 per ounce.

Copper also declined. London Metal Exchange benchmark copper futures dipped 1.2% to $13,486.33 a ton. U.S. copper futures fell 2.3% to $6.22 a pound.

Investors are now watching U.S. Personal Consumption Expenditures inflation data, due Thursday. The PCE index is the Fed’s preferred measure of inflation. The release, along with S&P PMI data and comments from Fed officials, could shape expectations for the December meeting.

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