Gold deepens losses to two-month trough before Fed's minutes

Gold prices declined in European trading on Wednesday, deepening losses for a second consecutive session and hitting their lowest levels in nearly two months, pressured by the stronger US dollar and rising Treasury yields, which outweighed the impact of hopes for a peace agreement between the United States and Iran.

As inflationary pressures intensify once again for Federal Reserve policymakers, expectations have increased that the Fed could raise interest rates at least once this year. Investors are also awaiting the release of the minutes from the latest US monetary policy meeting later today for further clues on the rate outlook.

Price overview

• Gold prices today: Gold fell 0.65% to $4,453.60 per ounce, the lowest level since March 30, from an opening level of $4,482.19, after touching an intraday high of $4,508.87.

• At Tuesday’s settlement, gold lost 1.9%, marking its fifth loss in the past six sessions amid escalating tensions in the Middle East.

The US dollar

The US Dollar Index rose around 0.2% on Wednesday, extending gains for a second straight session and reflecting continued strength in the US currency against a basket of major and minor currencies.

As is well known, a stronger US dollar makes dollar-denominated gold bullion less attractive to holders of other currencies.

The dollar continues to receive clear support from higher US Treasury yields, as investors increasingly bet that the Federal Reserve will raise interest rates at least once this year.

The yield on benchmark 10-year US Treasury notes remained near its highest level in more than a year on Wednesday, increasing the opportunity cost of holding non-yielding gold.

Developments in the Iran war

• US President Donald Trump stated that he would “end the war with Iran very quickly,” expressing confidence in resolving the conflict.

• Vice President JD Vance announced that the United States and Iran had made “very significant progress” in their ongoing negotiations.

• The diplomatic progress comes after Trump officially revealed that a large-scale planned military attack on Tehran had been postponed following a direct request from leaders of Saudi Arabia, the UAE, and Qatar, in order to give mediation efforts a final “two or three day” window.

US interest rates

• Kevin Warsh will be sworn in as Chairman of the Federal Reserve on Friday.

• Philadelphia Federal Reserve President Anna Paulson said the current level of interest rates remains appropriate for now, helping push inflation lower while price pressures remain elevated.

• Paulson added that it is “healthy” for investors to begin considering scenarios that could require further interest rate hikes.

• According to the CME FedWatch Tool, markets are currently pricing in a 45% probability that the Federal Reserve will raise interest rates in December, up from just above 16% at the beginning of May.

• Markets are also pricing a 99% probability that rates will remain unchanged at the June meeting, while the probability of a 25-basis-point rate cut stands at just 1%.

• To reassess these expectations, investors are closely watching the release of the latest Federal Reserve meeting minutes at 18:00 GMT.

Gold outlook

Tim Waterer, Chief Market Analyst at KCM Trade, said gold is losing some momentum as yields rise and the dollar rebounds amid increasingly hawkish expectations for Federal Reserve policy.

SPDR Gold Trust

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell by 2 metric tons on Tuesday, bringing total holdings down to 1,036.85 metric tons, the lowest level in a week.