Gold prices ease with Fed meeting around the corner

Gold eased on Tuesday ahead of a Federal Reserve meeting that investors will be watching for an update on the pace at which the U.S. central bank plans to wind down its pandemic stimulus measures

Spot gold fell 0.2% to $1,784.26 per ounce by 1106 GMT. U.S. gold futures dropped 0.2% to $1,785.30

“The strong U.S. dollar and rising U.S. real interest rates on declining inflation expectations, as gauged by break-even inflation rates, are the factors keeping gold below $1,800/oz,” said UBS analyst Giovanni Staunovo

“Market participants will closely track the upcoming Federal Open Market Committee meeting to see how the central bank reacts on elevated inflation, which will result in likely larger price moves

The dollar steadied, limiting demand for bullion for buyers holding other currencies. Meanwhile, U.S. Treasury yields ticked up from a one-week trough touched in the previous session, also pressuring gold

The Fed will begin its two-day monetary policy meeting later in the day. It is expected to announce that it is wrapping up bond buying stimulus sooner than previously communicated, potentially setting up earlier interest rate hikes next year

Reduced stimulus and interest rate hikes tend to push government bond yields up, raising the opportunity cost of holding bullion, which bears no interest

“Should the Fed step up the gear on tapering, this is likely to punish gold prices as the dollar appreciates, yields rise and rate hike expectations jump. In the meantime, support can be found at $1,765 and resistance around the psychological $1,800 level,” FXTM analyst Lukman Otunuga said in a note

The European Central Bank, the Bank of England and the Bank of Japan are also scheduled to meet this week