Gold hovers near 2-1/2-month low; investors focus on Fed rate decision

Gold was flat on Tuesday, after hitting a more than two-month low, as investors braced for more aggressive rate hikes from the U.S. central bank that have boosted the dollar and Treasury yields and lifted the opportunity cost of holding gold.

Spot gold was flat $1,863.16 per ounce by 1144 GMT, after touching its lowest since Feb. 16 of $1,849.90 earlier.

U.S. gold futures were down 0.2% at $1,860.50 per ounce.

"The focus of the market is very much attached to the tightening of monetary policies by the main central banks, especially the Federal Reserve," said Ricardo Evangelista, senior analyst at ActivTrades.

 

"We've seen yields on the 10-year Treasury going above 3% and this is very penalizing for an asset that doesn't yield like gold."

Investors expect the Fed to raise rates by 50 basis points at the end of a two-day meeting on Wednesday, in order to rein in soaring inflation, while comments by Chairman Jerome Powell will be scanned for further signals on rate hikes.

Benchmark U.S. 10-year Treasury yields hovered close to 3%, a key psychological level, while the dollar held near 20-year highs, making greenback-priced gold less attractive for overseas buyers. [USD/] [US/]

"Spot gold pierced below support targets last seen in mid-February 2022 and looks to test subsequent levels as fundamentals look to align with bullion bears," DailyFX analyst Warren Venketas said in a note.

"The dollar remains favoured with the U.S. economy being able to withstand such aggressive tightening regardless of external factors leaving gold exposed to a lengthy drop."

While gold is perceived as an inflation hedge, higher U.S. interest rates and bond yields lift the opportunity cost of holding zero-yield bullion.

Spot silver edged up 0.3% at $22.69 per ounce, platinum firmed 1.4% to $948.30, and palladium rose 2% to $2,262.57.

(Reporting by Eileen Soreng in Bengaluru; Editing by Shinjini Ganguli and Rashmi Aich)