Gold prices at 2-1/2-year low as traders await Fed rate decision

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Gold prices on Wednesday hovered close

to their lowest since April 2020, as investors prepared for the

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likelihood of another super-sized interest rate hike from the

U.S. Federal Reserve to tackle stubborn inflation.

Spot gold was flat at $1,663.92 per ounce, as of 0532

GMT. U.S. gold futures also traded flat at $1,672.

The Fed will release its policy decision at 1800 GMT. Rate

futures traders are pricing in an 81% chance of another 75

basis-point hike and a 19% probability of a 100 bps increase.

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“The market wants the Fed to rip the bandaid off so it can

have clarity as to the future state of rate decision making and

the direction for the broader economic outlook,” said Michael

Langford, director at corporate advisory firm AirGuide.

“For gold presently the market is treading water until the

Fed policy decision and then will likely respond with a

heightened level of volatility before more likely re-trending

positively as investors seek to put money to work.”

While gold is considered an inflation hedge, rising interest

rates increase the opportunity cost of holding the non-yielding

asset and bolsters the dollar, in which the bullion is priced.

The dollar index inched closer to a two-decade high

scaled earlier this month.

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Indicative of sentiment, holdings of SPDR Gold Trust ,

the world’s largest gold-backed exchange-traded fund, fell 4.63

tonnes on Tuesday, their biggest one-day outflow since July 18.

“It seems unlikely that gold ETF inflows will sustainably

rebound until traders crystalize a turn in the Fed tightening

cycle and/or there is consensus on a U.S./global recession,”

analysts at Citi Research said in a note.

Spot silver edged 0.1% lower to $19.29 per ounce,

platinum rose 0.5% to $926.48 and palladium fell

1% to $2,146.87.

(Reporting by Eileen Soreng in Bengaluru; Editing by Sherry

Jacob-Phillips)