Gold prices (XAU/USD) continue to be depressed and fall closer to the $4,100 level as investors become more confident that the Federal Reserve (Fed) will raise interest rates before the end of this year.
At 9 am, gold prices were trading at $4,070, down 1.01% since it opened in early trading Wednesday in the Asian session.
The precious metal has begun to lose momentum since the outbreak of the US-Iran conflict on February 28.
Although the latest agreement between Washington and Tehran has managed to ease pressure on energy prices, inflation risks remain and reinforce market expectations that the Fed will need to act more aggressively.
The sentiment was also strengthened after last week's Fed meeting, which was seen as more inclined towards tight monetary policy under the leadership of Kevin Warsh.
A higher interest rate environment usually puts pressure on gold because the asset does not offer interest returns to investors.
According to the CME FedWatch tool, the probability of the Fed raising interest rates in December has now risen to 86.1%, up from just 61% before last week’s FOMC meeting.
Deutsche Bank analyst Michael Hsueh said the Fed’s revised rate expectations and still-strong US economic data were the main factors driving the decline in gold prices. The bank also lowered its gold price forecast to $4,300 for the third quarter and $4,800 by the end of the year.
Market attention now turns to the US Personal Consumption Expenditures (PCE) Price Index for May, due on Thursday. The inflation data is expected to provide an important clue to the Fed’s interest rate path for the rest of the year.
