Gold Prices Fall as Stronger Dollar, Fed Rate Hike Bets Weigh

Gold prices declined on Monday, pressured by a strengthening U.S. dollar and mounting expectations that the Federal Reserve will implement at least one more interest rate hike before the end of the year.

As of 9:59 AM ET (21:59 GMT), spot gold was down 0.7% at $4,347.96 per ounce, while gold futures for December delivery fell 0.9% to $4,385.70 per ounce, according to data from Investing.com.

Fed's Hawkish Stance Dominates

The primary driver for gold's weakness is the market's reaction to the Federal Reserve's recent monetary policy signals. The central bank raised interest rates last week and indicated that further tightening could be necessary to combat inflationary pressures, particularly from rising energy costs.

"Gold prices are starting the week slightly lower as investors digest the first Fed rate hike since 2023 and the prospect of further policy tightening," analysts at ING noted in a research report. Higher interest rates increase the opportunity cost of holding non-yielding assets like gold, making them less attractive to investors.

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Market sentiment has solidified around the prospect of another rate increase. According to the CME FedWatch Tool, traders are now pricing in an approximately 88% probability of the Fed hiking rates again as soon as its December meeting. ING analysts added that recent comments from Fed officials have "reinforced concerns that inflation remains elevated, supporting the view that rates will stay higher for longer."

Dollar Strength Adds Pressure

Compounding the pressure on gold was a firm U.S. dollar. The dollar index, which measures the greenback against a basket of major currencies, edged up 0.1% to 100.35. A stronger dollar makes gold, which is priced in dollars, more expensive for buyers using other currencies, typically dampening demand.

Despite the headwinds from monetary policy, gold recorded a net gain last week, partly supported by a retreat in oil prices. Crude oil continued its decline on Monday amid optimism over diplomatic efforts concerning Iran ahead of this week's UN General Assembly, according to market reports.