Gold Hits One-Week Low as Dollar Strengthens; Markets Await Fed Decision and Powell's Remarks

Gold prices fell to a one-week low on Tuesday (28th), driven by a strong U.S. dollar and investor caution ahead of the Federal Reserve's (Fed) policy decision and remarks from Chair Jerome Powell.

Spot gold declined 1.2%, closing at $4,026.49 per ounce, briefly touching its lowest level since July 21.

August-delivery gold futures dropped 0.9% to settle at $4,038.70 per ounce.

The U.S. dollar held near a one-month high, making dollar-denominated gold more expensive for overseas buyers.

David Meger, Head of Metals Trading at High Ridge Futures, said: "Elevated energy prices remain an inflation risk that Fed officials are monitoring. Market expectations for a hawkish Fed stance are boosting rate hike expectations and strengthening the dollar, further pressuring gold prices."

Since late February, when the U.S. and Israel launched military actions against Iran, gold prices have fallen approximately 24%, as markets anticipate that war-driven inflationary pressures could keep interest rates elevated for longer.

Gold is traditionally seen as a long-term hedge against inflation, but rising interest rates typically hurt non-yielding assets like gold.

Investor focus is now on the Fed's interest rate decision and Powell's press conference on Wednesday. Traders estimate a 71% probability that the Fed will hold rates steady this week, with a 75% chance of a rate hike in September.

Additionally, the U.S. June Personal Consumption Expenditures (PCE) price index, due Thursday, is expected to provide further clues on the monetary policy outlook.

Commerzbank has lowered its year-end gold price forecast by $300 to $4,500 per ounce, stating that unless market expectations on interest rates reverse, sustained inflows into gold ETFs are unlikely, and a significant rebound in gold prices will be difficult.

On the geopolitical front, President Trump said on Monday that negotiations with Iran are "progressing well" and that a deal remains possible. However, he warned that if talks collapse, the U.S. military would resume airstrikes on Iran. Iran has issued similar signals, indicating it would take retaliatory actions if the situation worsens.

Other precious metals:

- Spot silver fell 2.2% to $57.11 per ounce - Spot platinum declined 1% to $1,605.80 per ounce - Spot palladium dropped 2.3% to $1,261.92 per ounce