Gold pulls back as dollar advances ahead of Fed meeting

© Reuters.

By Ambar Warrick

Investing.com -- Gold prices retreated on Tuesday, coming under pressure from a stronger dollar as caution kicked in ahead of a Federal Reserve meeting this week, while broader metal markets also ticked lower.

The yellow metal marked a slow start to the week ahead of the conclusion of a two-day Fed meeting on Wednesday, where the bank is widely expected to raise interest rates by 25 basis points.

But its outlook on monetary policy will be a key point of focus, as recent economic data from the U.S. suggested that the central bank may have enough headroom to raise interest rates further.

Spot gold fell 0.1% to $1,922.10 an ounce by 18:59 ET (23:59 GMT), while gold futures were muted around $1,921.75 an ounce.

The spot price overtook the futures price ahead of the upcoming expiry of the futures contract, indicating that near-term demand for gold was still strong.

The yellow metal staged a stellar rally through late-2022 and early-2023 as softer inflation readings from the U.S. drummed up expectations that the Fed will hike interest rates at a slower pace in 2023.

But given that inflation is still well above the Fed’s annual target, markets remained uncertain over where U.S. borrowing rates will peak. The Fed has also warned that stubborn inflation could result in rates remaining higher for longer.

The dollar recovered against a basket of currencies this week, also putting some pressure on metal markets.

A mix of elevated interest rates and high inflation is expected to weigh on economic growth this year, raising the risk of a recession in major economies. Gold has also benefited from safe haven demand on this notion.

Fourth-quarter economic growth data from the euro zone, due later in the day, is also expected to shed more light on the prospect of a recession. But anticipation of the Fed meeting saw investors shift to the dollar as their preferred safe haven.

Platinum futures were flat at $1.017.15 an ounce, while silver futures fell 0.3% to $23.668 an ounce.

Among industrial metals, copper prices were dented by a stronger dollar and fears of a recession.

High-grade copper futures were flat around $4.1833 a pound after tumbling over 1% in the prior session.

Prices of the red metal took little support from the prospect of disrupted supply from world no.2 copper producer Peru, which is facing increased civil unrest after the ouster of President Pedro Castillo.