Gold falls as firm dollar, Treasury yields weigh ahead of Fed decision

Gold prices eased on Wednesday as a stronger U.S. dollar and elevated Treasury yields weighed on prices, with investors awaiting the Federal Reserve’s interest-rate decision and comments from Chair Kevin Warsh later in the day for signals on the future path of monetary policy.

XAU/USD 0.4% to $4,0007.08 09:35 ET (11:35 GMT), while U.S. Gold futures slipped 0.84% to $4,004.60.

The precious metal extended losses after dropping more than 1% in the previous session, pressured by a stronger U.S. dollar and higher Treasury yields ahead of the Federal Reserve’s policy decision.

Fed decision awaited, uncertainty lingers

The US Dollar Index was largely flat on Wednesday but remained near a one-month high, making gold more expensive for overseas buyers.

The Federal Reserve is widely expected to leave interest rates unchanged at the conclusion of its two-day meeting later on Wednesday.

According to CME Group’s FedWatch Tool, markets assign a roughly 68% probability that the Fed will leave rates unchanged on Wednesday, with a 32% chance of a 25-basis-point increase. Traders are also pricing in a roughly 77% chance of a rate hike in September.

Higher-for-longer interest rates typically weigh on gold by increasing the opportunity cost of holding the non-yielding asset.

Middle East hostilities restart; oil rebounds

Investors also monitored renewed tensions in the Middle East after the U.S. military said it intercepted multiple ballistic missiles launched by Iran towards American forces in the region.

Iran’s Revolutionary Guards later said they had targeted a U.S. air base and a U.S. Central Command facility in Jordan, raising concerns that the recent diplomatic pause could prove short-lived.

Iraq’s Iran-aligned Popular Mobilization Forces (PMF) said that U.S. and Saudi forces carried out airstrikes on its headquarters across several Iraqi provinces.

Saudi Arabia has separately said it intercepted drones launched from Iraqi territory targeting oil facilities and has blamed Iran-backed militias for the attacks.

The attacks ended a four-day pause in direct military exchanges between Washington and Tehran and raised the risk of renewed escalation after a brief diplomatic opening.

Oil prices rebounded more than 4% on Wednesday after the latest exchange.

"Higher oil prices amid a re-escalation in the Middle East will weigh on gold in early morning trading, reigniting inflation concerns," ING analysts said in a note.

Traders are also looking ahead to U.S. economic data later this week, including the personal consumption expenditures price index and July payrolls report, for further insight into the outlook for interest rates.

Among other precious metals, silver prices rose about 1% to $57.63 an ounce, while platinum fell 0.8% to $1,594.30 an ounce.

Benchmark Copper Futures on the London Metal Exchange slipped 0.6% to $13,610.00 a ton, while U.S. Copper Futures shed 0.7% to $6.313 a pound.