Investing.com–Gold prices edged higher on Tuesday, continuing their tepid performance as investors continued to remain cautious about the rising dollar following the U.S. Federal Reserve’s hawkish stance.
Traders also refrained from placing big bets ahead of a shortened trading week due to the Christmas holidays.
rose 0.2% to $2,616.95 per ounce, while the February term rose 0.2% to $2,633.89 per ounce.
The yellow metal rose 0.3% on Monday, after losing more than 1% the previous week, reflecting uncertainty over the metal’s prospects.
Precious metals are under pressure on the Fed rate outlook
Gold prices hit a one-month low on Wednesday after the Fed meeting indicated that rates will remain higher for an extended period after Wednesday’s cut.
Prices have not fully recovered and have seen muted moves as investors continue to assess the implications of the Fed’s rate outlook.
Higher interest rates put downward pressure on gold because the opportunity cost of holding gold increases, making it more attractive compared to interest-bearing assets such as bonds.
Traders now expect a decline of just two quarter points in 2025, against the backdrop of continued economic resilience and still high inflation. This compares with expectations of four rate cuts ahead of the Fed meeting.
A strong dollar creates downward pressure on gold and other metals
The Fed’s aggressive shift provided renewed strength for the US dollar as higher interest rates make the dollar more attractive due to higher returns on dollar-denominated assets.
The stock rose 0.1% in Asia hours on Tuesday, hovering near the two-year high it hit last week.
A stronger dollar often weighs on gold prices, as it makes the yellow metal more expensive for buyers using other currencies.
Other precious metals were largely muted. rose 1.2% to $960.15 per ounce, while the price rose 0.3% to $30.265 per ounce.
Copper fell due to strong dollar and seasonal factors
Among industrial metals, copper prices were subdued on Tuesday, moving within tight ranges, while a strong dollar weighed on the red metal.
Analysts attributed copper’s weakness to seasonal sluggishness, as industrial production and construction projects often slow as companies and projects prepare for year-end closures and holidays.
The benchmark on the London Metal Exchange was largely unchanged at $8,954.50 per tonne, while the one-month benchmark was 0.5% higher at $4.1045 per pound.