Gold is Close to Falling Below $1,700 as Expectations of a Fed Rate Hike Soar

On Wednesday, spot gold prices temporarily fell below $1,700 as indicators of strength in the U.S. economy fuelled hopes that the Federal Reserve will continue hiking interest rates rapidly.

Spot gold dropped as much as 0.5% to $1,699.97, while gold futures declined 0.1% to $1,711.0 as of 19:18 ET (11:29 GMT). Tuesday saw declines of 0.5% and 0.7%, respectively, for both assets, which were hovering at late-July lows.

Gold saw fresh pressure from the strength of the U.S. dollar, which soared on Tuesday following the release of data showing that the U.S. service sector continued to expand in August. August's ISM non-manufacturing purchasing managers index was 56.9, exceeding estimates of 55.1 and the previous month's reading of 56.7.

The result, combined with strong signals from the labor market last week, implies that the U.S. economy is regaining some vigor, giving the Federal Reserve greater room to sharply hike interest rates.

The dollar index rose 0.4% to 110.25, a level not seen in over two decades, while dollar index futures also rose. Yields on 10-year U.S. Treasuries reached their highest level in two months, while yields on shorter-term Treasuries rose.

In September, investors anticipate a 72% chance that the Fed will raise interest rates by 75 basis points.

As the Fed began to raise interest rates this year, the price of gold has declined substantially from its peaks in 2022. In the face of a likely global economic slowdown, rising demand for safe-haven assets has had minimal impact on gold prices. Other precious metals have experienced comparable declines this year.

Among industrial metals, copper prices remained unchanged following significant advances earlier in the week.

Copper futures climbed about 2% earlier as China, the world's top importer of the red metal, unveiled additional economic development boosting measures. However, the forecast for copper remains restricted by slow global economic activity.

China's industrial sector has contracted for two consecutive months, and Beijing's zero-COVID policy will continue to create headwinds.