Key Takeaways:
Gold and silver held near key levels Tuesday as the Federal Reserve opened its two-day policy meeting, with traders weighing the outlook for interest rates and the US dollar.
August gold futures fell more than 1% to a session low of $4,016.50 on the COMEX, while the US Dollar Index rose to 101.64, its highest since June 25, according to exchange data. Silver tracked gold lower, with both precious metals sensitive to real yields and dollar strength.
"In the case of a rate hold decision with two or fewer dissents, the dollar should see knee-jerk weakness as the event risk premium fades away," Howard Du, a strategist at TD Securities, said in an interview Tuesday. TD expects two dissents from Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan, a scenario that would likely push the dollar gauge down 0.3%.
The dollar has gained nearly 3% since the Middle East conflict escalated in late February, buoying haven flows and pushing speculative traders to their most bullish positioning on the greenback since 2015, Commodity Futures Trading Commission data show. A stronger dollar typically pressures gold and silver, which are priced in the US currency.
The Federal Reserve under Chair Kevin Warsh is expected to hold its key interest rate unchanged when it announces its decision Wednesday. However, rising inflation pressures from higher oil prices and tariffs have strengthened the case for a rate hike, though TD strategists said "more evidence is needed to win majority support."
Consumer confidence weakened in July, with the Conference Board's index falling to 90.8 from June's upwardly revised 92.2, below the Dow Jones estimate of 92.0. The survey period coincided with heightened Middle East tensions and higher oil prices, which have added to inflation concerns.
Gold at current levels trades roughly 50% above its October 2024 record of roughly $2,700, reflecting the cumulative impact of geopolitical risk, inflation hedging, and central bank buying. The next major catalyst for XAU/USD and XAG/USD comes Wednesday at 2 p.m. ET when the Fed releases its statement and rate decision.
This article is for informational purposes only and does not constitute investment advice.
