Gold retreats as dollar strengthens ahead of Fed decision

Gold prices fell on Wednesday just ahead of the Federal Reserve's major interest rate decision. A slightly stronger US dollar put additional pressure on the precious metal.

At 10:21ET (14:21GMT), spot gold was down 0.4% at $4,046.31 an ounce. Gold futures similarly fell 0.4% to $4,058.30. The US dollar index, which measures the greenback against a basket of world currencies, rose 0.1% to 102.37. The stronger dollar generally makes gold less attractive to buyers outside the United States.

"Gold is regaining its footing after a recent correction attracted bargain hunters and physical buyers, although ETF outflows have been a headwind recently," ING analysts wrote in a note.

Bullion recovered after rising 1.1% a day earlier, while oil prices edged higher after two consecutive days of decline. Global stocks rose as investors eyed a hotly contested Israeli election and enthusiasm for AI-linked investments returned after last week's selloff.

The massive expansion of AI trading has also squeezed gold. When tech stocks declined, some investors sold bullion to cover losses elsewhere. That pressure pushed gold to its lowest level since mid-July on Friday.

Even though the metal has slipped below $4,000 an ounce in recent days, physical buyers and bargain hunters have prevented deeper declines.

Chinese families have added additional support. According to ANZ, demand for bullion has increased in the last two months due to softening of prices and reduced attractiveness of domestic equities. Those purchases have helped gold establish a bottom line despite wide market fluctuations.

Traders' focus is now on the Fed, which most expect to keep rates steady after its two-day meeting on Wednesday. Still, the market is looking at the possibility of a rate hike at the central bank's final meeting of the year in December, as higher energy costs keep inflation concerns alive.

Fed Chairman Kevin Wersh will need to reassure investors that the Fed remains committed to taming inflation, even if policymakers decide to keep rates steady this week. Warsh's post-decision press conference will be closely watched for clues on a possible policy path. Higher rates increase the opportunity cost of holding non-yielding assets like gold.

Later this week, the September reading of the US personal consumption expenditures price index – one of the Fed's favorite inflation gauges – could provide more insight into which direction rates may head.

(Scott Kanowski contributed reporting)

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Conclusion for gold traders and investors

• There was a slight decline in gold due to slight strengthening of the dollar, which put pressure on the metal.
• Physical demand, especially from Chinese buyers, remains stable despite the decline.
• The Fed is now likely to keep rates on hold, but the long-term outlook remains uncertain with a possible hike in December.
• Watch the upcoming PCE inflation report and the Fed Chairman's press conference for clues on future price movements.