Gold Price Declined Against Strong Dollar and Fed's Anticipated Stricter Policy

Gold prices declined by approximately 1.5% on Tuesday as the strengthening of the US dollar and expectations of a potential interest rate increase by the Federal Reserve weakened investor interest in the non-yielding asset. Markets are also closely monitoring ongoing peace talks between the US and Iran.

Spot gold prices fell 1.55% and reached $4,126.45 per ounce, while gold futures declined 1.63% and dropped to $4,142.10.

The US dollar index remains near a 13-month high, supported by expectations of tighter monetary policy from the Federal Reserve. Although the Fed left interest rates unchanged in the range of 3.50%-3.75% last week, updated forecasts suggest that the likelihood of at least one rate increase by year-end has risen.

Markets are currently pricing in approximately a 90% probability of a rate increase in December. A stronger dollar makes gold more expensive for holders of other currencies, while higher interest rates reduce its appeal, as gold does not generate interest income.

Investors are also closely following diplomatic developments between Washington and Tehran. The US granted a 60-day sanctions exemption on certain Iranian oil sales, which is seen as a sign of progress in negotiations. Despite gold traditionally being considered a safe haven during geopolitical uncertainty, investor attention has recently shifted more towards inflation risks.

The Iran conflict at the beginning of the year triggered sharp increases in oil prices, raising concerns that higher energy costs could force central banks to maintain elevated rates for a longer period.

Markets are now awaiting US Personal Consumption Expenditures (PCE) inflation data, which will be released on Thursday and represents one of the Fed's key inflation indicators.