Gold prices (XAU/USD) fell to the $2,420 range on Tuesday, influenced by central bank policymakers’ reluctance to commit to lowering interest rates. Higher interest rates tend to diminish the appeal of gold, as investors can earn better returns from cash or bonds in such an environment.
However, persistent geopolitical concerns, including conflicts in the Middle East and Ukraine, are providing support for gold prices. Additionally, emerging markets and BRICS nations are increasing their gold reserves as a hedge against potential Western sanctions, which often target US Dollar (USD) or Euro (EUR) reserves.
Gold Price Decline Driven by Interest Rate Outlook
Gold prices pulled back on Tuesday following statements from central bankers in the US and Australia, who not only refrained from committing to lower interest rates but also discussed the possibility of raising them.
On Monday, Loretta Mester, President of the Federal Reserve Bank of Cleveland, indicated that the Fed could potentially increase rates if inflation persists, suggesting that it was “no longer appropriate” to anticipate three rate cuts this year.
Additionally, the Reserve Bank of Australia (RBA) released the minutes from its May meeting on Tuesday morning. The minutes revealed that the board had considered raising interest rates, marking the first discussion of policy tightening in several months.
