Gold prices rise when the Fed tightens and the dollar falls

Gold prices rose moderately on Wednesday, extending small gains into a third session as dollar pressure eased. However, hawkish remarks from Federal Reserve officials halted any price advances.

As of 19:20 EST, spot gold rose 0.1% to $1,653.49 per ounce, whereas gold futures rose 0.2% to $1,658.90 per ounce (23:20 GMT). Both instruments spent a second day above the important support level of $1,650, following the dollar's decline.

This week, the dollar index is trading roughly 1% lower as risk appetite has strengthened in reaction to a series of strong Wall Street earnings. Following a run of hawkish comments from Federal Reserve officials, the dollar appeared to have stabilized on Tuesday.

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, indicated that if underlying inflation does not reduce, the Fed could hike its target rate above 4.75 percent. Despite a series of significant rate hikes this year, inflation in the United States remained stubbornly close to its highest level in forty years.

Raphael Bostic, president of the Federal Reserve Bank of Atlanta, underlined the need to reign in inflation, noting the impact of rising interest rates and prices on the labor market.

Following Bostic and Kashkari's remarks, U.S. Treasury yields climbed as traders anticipated future hawkish Federal Reserve activities. In addition, the markets are pricing in a nearly 100 percent chance that the Federal Reserve will raise interest rates by 75 basis points at its fourth consecutive meeting in November.

Earlier this year, the price of gold reached its highest level in the previous two years. Nonetheless, as interest rates rose, the opportunity cost of owning gold increased considerably. Given the Federal Reserve's lack of willingness to halt rate hikes, it is projected that this pressure will persist in the near future.

Following three consecutive sessions of decline due to expectations of a decline in demand, copper prices rose marginally on Wednesday. Rio Tinto (NYSE:RIO) and BHP Group (NYSE:BHP) projected a near-term fall in metal demand, clouding the outlook for industrial metals this week.

According to the world's two largest miners, sluggish economic growth and heightened geopolitical tensions would certainly disrupt supply chains and reduce metal demand.

Copper futures rose 0.1% to $3.3655 per pound, but are currently down 1.7% on the week.

As fears of a U.S. recession increased, China's statement that it will not adjust its zero-COVID policy was the strongest source of selling pressure on the precious metal.