Gold prices fell during Tuesday's trading session after hitting their highest level in more than three months earlier in the day, as investors turned their attention to upcoming US inflation data and a speech by Federal Reserve Chairman Kevin Warsh later this week.
Spot gold fell 0.2% to $4,640.39 an ounce, while U.S. gold futures settled at $4,696.00 an ounce.
Tony Sycamore, a market analyst at IG, said that forecasts indicate that any declines in gold prices will find strong support from buyers who are anticipating the precious metal reaching the next ascending resistance levels at $4,900 and $5,000 an ounce.
Gold prices had risen sharply last week after the US Treasury announced it would double the size of its repurchase operations of Treasury bonds and long-term securities in order to support liquidity, raising concerns about a possible weakening of the US dollar.
Fears of a weak dollar are supporting gold.
TD Securities said in a research note that concerns about a weakening US dollar would provide strong support for gold in the coming weeks, especially since the Federal Reserve has yet to send a clear signal that it is prepared to confront rising inflation.
The company added that it is still too early for gold to rise to its target of $5,350 an ounce, given the likelihood of short-term interest rates eventually rising as crude oil prices continue to climb gradually.
Gold is often seen as a hedge against inflation, as it can help investors protect the value of their assets when prices rise. However, rising interest rates can diminish the appeal of the precious metal, since it is an asset that does not generate periodic returns like bonds or some other investment instruments.
Therefore, the movement of interest rates and Treasury bond yields remains one of the most prominent factors determining the direction of gold, especially as the metal approaches high price levels and after recording strong gains during the recent period.
The word warsh and inflation data under scrutiny
The highly anticipated speech by Federal Reserve Chairman Kevin Warsh at the annual conference in Jackson Hole this week is gaining increasing importance, as traders and analysts look for clues as to his stance on the recent surge in bond yields.
Investors are also awaiting Warsh's remarks for further clues on the direction of monetary policy, as well as for assurances of the Federal Reserve's independence from the administration of US President Donald Trump.
The U.S. personal consumption expenditures report, the Federal Reserve's preferred measure of inflation, is due to be released on Wednesday, making the anticipated data a key element in determining market expectations regarding interest rates.
A higher-than-expected inflation reading could affect investors' expectations regarding the path of interest rates, potentially raising bond yields and putting pressure on gold, while a weaker-than-expected reading could give the precious metal additional support if it strengthens the prospects for interest rate cuts or reduces expectations of monetary policy tightening.
Sanctions on Iran add a geopolitical factor
On the geopolitical front, Iran vowed to retaliate against the expansion of US economic sanctions, after Washington said the new measures would cut off Tehran’s economic lifeline.
Developments related to Iran are adding a new element of uncertainty to the markets, amid ongoing geopolitical tensions and their potential impact on energy prices, inflation, and demand for assets viewed by investors as safe havens.
As for other precious metals, silver fell 1.3% in spot trading to $68.01 an ounce, while platinum dropped 1.2% to $1,853.85 an ounce.
Palladium also fell by about 1% to $1,345.26 an ounce, with most precious metals moving in a downward direction during Tuesday's trading, as markets awaited US inflation data and statements from the Federal Reserve chairman.
