Gold prices struggled to find clear direction on Wednesday, as investors avoided big moves ahead of a key US Federal Reserve interest rate decision that could influence the outlook for bullion.
Spot gold stood at $1,715.43 per ounce, as of 0517 GMT. US gold futures dipped 0.3% to $1,712.80. The US central bank is widely expected to raise interest rates by another 75 basis points (bps) at the conclusion of its policy meeting later on Wednesday, as it attempts to tame runaway inflation without triggering a recession.
With a 75-bp hike already priced in, bullion could hold ground or trend lower after the Fed meeting, depending on how much short covering takes place, said Michael Langford, director at corporate advisory firm AirGuide. Rising interest rates for the next three months will put downward pressure on gold and should see prices break below $1,700/oz, due to the ongoing flow of funds to the dollar, Langford said.
Higher interest rates and bond yields increase the opportunity cost of holding non-yielding bullion. Benchmark US 10-year Treasury yields firmed on Wednesday, weighing on demand for gold.
The dollar , however, eased after a sharp rise in the previous session, increasing the greenback-priced gold's appeal among buyers holding other currencies, and limiting losses. "This would have to be the most fully expected, fully priced into markets 75-point rate hike in history," said Clifford Bennett, chief economist at ACY Securities.
Short- and medium-term traders want to sell gold in advance of the event, expecting the decision to be bad for gold prices, but buyers of gold are waiting in the wings to take advantage of an expected price drop, creating a market equilibrium, Bennett said.
Spot silver dipped 0.3% to $18.54 per ounce, platinum was flat at $872.43, while palladium traded steady at $2,011.61.