By Ashitha Shivaprasad
(Reuters) – Gold firmed on Tuesday, tracking a slight retreat in U.S. Treasury yields and dollar, while investors anticipated an aggressive interest rate hike from the U.S. Federal Reserve when it concludes a two-day policy meeting.
Spot gold was up 0.3% to $1,869.08 per ounce by 1655 GMT. Prices had touched $1,849.90 earlier in the session, its lowest since Feb. 16.
U.S. gold futures were up 0.4% at $1,871.50 per ounce.
“Gold in recent weeks has dropped significantly as the yield curve has moved up. Today a slight retreat in yields is supporting gold prices… Gold is going to be fairly range-bound,” said head of commodity strategies at TD Securities, Bart Melek.
“Gold has pretty much priced in a fairly aggressive set of policy moves for the Fed meeting.”
U.S. benchmark 10-year Treasury yields backed off the 3% level on Tuesday. Meanwhile, the dollar index was down 0.2%, making bullion less expensive to other currency holders.[US/] [USD/]
Market participants expect the Fed to raise rates by 50 basis points at the end of a two-day meeting on Wednesday in order to rein in soaring inflation, while comments by Chairman Jerome Powell will be scanned for further signals on rate hikes.
While gold is considered a inflation hedge, higher interest rates lift the opportunity cost of holding zero-yield bullion.
If the FOMC meeting is more hawkish, gold could dip to levels indicated by real yields. However a dovish meeting or escalation in geopolitical tensions or inflation fears could push gold back towards $1,900/oz, Standard Chartered analysts said in a note.
“The sharply higher dollar against both the Indian rupee and Chinese renminbi, the world’s biggest buyers of physical gold may trigger a challenging period for gold, until buyers adapt to higher levels,” Saxo Bank analyst Ole Hansen said in a note.
Spot silver fell 0.1% at $22.60 per ounce.
Platinum firmed 2.8% to $961.94, and palladium rose 1.5% to $2,251.33.
(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Krishna Chandra Eluri and Bernadette Baum)