Gold slips as dollar strengthens, investors eye Fed rate outlook

Gold prices edged down on Tuesday as the dollar firmed and investors refocused on the Federal Reserve’s rate outlook following last week’s hike

A sharp decline in oil prices over recent sessions has eased some inflation pressure, helping limit the drop in gold. However, oil prices have bounced, leaving the benchmark Brent crude contract hovering above $100 a barrel.

Investors are now awaiting developments around potential talks between the U.S. and Iran at the United Nations General Assembly in New York this week. Meanwhile, Iran-backed Houthi militants and Saudi-backed forces in Yemen are battling for control over key areas controlling the Bab el-Mandeb Strait, a critical waterway for Saudi oil shipments.

“For now the momentum is on the more positive side though and with inflation fears subsiding again, that meant investors dialled back the likelihood of rapid rate hikes, even if plenty are still priced in for the month ahead,” analysts at Deutsche Bank said in a note.

The Fed has signaled that more possible rate rises may be coming before the end of the year to quell energy-driven inflation. This, in turn, has kept investors wary of higher-for-longer borrowing costs, which could dent demand for non-yielding assets like bullion.

Fed officials are due to deliver fresh comments on rates this week. Speaking to Reuters on Monday, St. Louis Fed President Alberto Musalem suggested that the Fed  should move quickly to further ratchet up rates or risk inflation staying well above the central bank’s 2% target level.

Against this backdrop, the U.S. dollar index, which tracks the greenback against a basket of currency peers, rose marginally to 100.50. A stronger dollar can make gold more expensive for oveseas buyers.