Gold hovers near $4,000 ahead of Fed decision: Here's everything to know

Gold prices were facing pressure Tuesday after remaining near the critical level of $4,000 per ounce as gold became weaker due to a stronger dollar and higher U.S. Treasury yields amid investor expectations for the Federal Reserve’s rate-setting meeting.

The spot gold price declined by 0.4% to $4,000.52 per ounce by mid-morning, while U.S. gold futures for the December delivery declined by 0.6% to $4,014.40. The dollar strengthened by 0.3% versus a basket of other major currencies and reached a two-week high, making gold more expensive for foreign buyers.

The gold price dropped almost 25% during the course of the U.S.-Iran war, sliding down to the level of $3,975 an ounce recently, which was the lowest level since mid-July. The growing oil prices, with the Brent oil price reaching close to $116 per barrel in light of new Houthi attacks on Saudi Arabia, increased fears of further inflation.

Whereas policymakers are anticipated by many to keep rates stable this week, traders have priced in an 82% chance of a rate hike this December, as per the CME FedWatch Tool. Higher interest rates create a higher opportunity cost for non-interest-bearing gold.

While gold is under pressure, longer-term players have maintained their buying spree of gold. Gold ETFs received record investment of $31 billion in Q3 but saw a fall of 6.8 tonnes during the week ending October 19, their first fall in seven weeks.

The Fed announcement on Wednesday and the PCE inflation numbers on Thursday will determine if gold stabilizes or meets another bout of selling pressure, with $4,000 being the near-term test.