Gold experienced a choppy overnight session as London spot gold edged down 0.12%, while COMEX gold futures slipped 0.43%. A stronger US dollar alongside rising 10-year Treasury yields continued to exert downward pressure on bullion, given that the market has already priced in a high probability of a rate hike at this week's Federal Reserve meeting.
All attention now shifts to tonight's Fed policy decision, the updated dot plot, and Chair Powell's press conference, with the core focus being the central bank's forward guidance on the path of future rate increases. Heading into this major event, gold is likely to remain rangebound.
On the geopolitical front, Russian Foreign Minister Lavrov signaled that Moscow is prepared to make reasonable concessions on the Ukraine issue but will not permit NATO's presence along its borders. Meanwhile, a Houthi spokesperson reported that Saudi Arabia has carried out 52 airstrikes on areas in Yemen.
According to the CME FedWatch tool, the market currently assigns a 95% probability to a 25-basis-point rate hike this week, while the odds for another hike in December have risen to roughly 70%. With the market almost fully pricing in a September move, gold shows tentative signs of bottoming out, but a cautious tone prevails ahead of the announcement, as some traders fear that a more hawkish-than-expected stance from Warsh could trigger further downside. As a result, the rebound remains tentative pending the release of the meeting outcome in the early hours.
In addition, the continued climb in long-end Treasury yields is fueling some safe-haven demand. At the same time, the Fed finds itself in a policy dilemma between taming inflation, which necessitates higher rates, and the risk that such tightening could deepen an economic slowdown. This tension may offer a supportive backdrop for gold's rebound. With the US midterm elections approaching, gold's dual role as both a safe haven and an inflation hedge could come to the fore during this period.
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