Gold muted as Fed policy tightening prospects weigh

Gold prices were muted on Thursday, pressured by expectations of further Federal Reserve policy tightening, though a dip in oil prices offered some support.

Spot gold was down 0.1% at $4,281.98 per ounce, as of 0155 GMT. US gold futures for December delivery were little changed at $4,317.50.

“Investors are currently focused on the Fed’s higher-for-longer stance following last week’s rate increase, fluctuations in the US dollar and Treasury yields, and Middle East developments related to oil and energy supply risks,” said Ross Maxwell, chief strategy officer, VT Markets.

“A clearer signal of another rate hike would pressure gold lower.”

Oil prices edged lower as Iran said it remained open to diplomacy to end the US-Iran war, though the two countries remain far apart on ways to do so.

The US central bank last week increased its benchmark interest rate by 25 basis points to 3.75%-4.00%. Mounting inflation pressures and a strengthening economy appear to be pushing the Fed towards a rate hike on the eve of critical national elections, with traders piling into bets on a second straight policy tightening in late October.

While gold is widely regarded as an inflation hedge, rising interest rates tend to diminish its appeal relative to interest-bearing investments.

Data on Wednesday showed that US business activity raced to a more than five-year high in September, though strong demand strained supply chains and pushed prices higher.

“In our baseline scenario, we expect precious metals to lack clear direction, although volatility is likely to remain high. Gold could continue to trade for a couple of quarters near an average of $4,200 per ounce,” Intesa Sanpaolo economist Daniela Corsini said in a note.

Among other metals, spot silver fell 0.6% to $64.07 per ounce, platinum rose 0.2% at $1,754.05 and palladium lost 0.1% to $1,260.70.