Gold falls to 2-1/2-month trough, Fed rate hike in focus

© Reuters. FILE PHOTO: Gold bars and coins are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich, Germany, August 14, 2019. REUTERS/Michael Dalder

By Eileen Soreng

(Reuters) - Gold prices fell on Tuesday to their lowest level since mid-February as investors braced for more aggressive rate hikes from the U.S. central bank that have boosted the dollar and Treasury yields and lifted the opportunity cost of holding gold.

Spot gold fell 0.3% to $1,857.48 per ounce by 0942 GMT. Prices fell to $1,849.90, the lowest level since Feb. 16, earlier in the session.

U.S. gold futures were also down 0.3% at $1,857.50 per ounce.

"The focus of the market is very much attached to the tightening of monetary policies by the main central banks, especially the Federal Reserve," said Ricardo Evangelista, senior analyst at ActivTrades.

"We've seen yields on the 10-year Treasury going above 3% and this is very penalizing for an asset that doesn't yield like gold."

Investors expect the Fed to raise rates by 50 basis points at the end of a two-day meeting on Wednesday in order to rein in soaring inflation, while comments by Chairman Jerome Powell will be scanned for further signals on rate hikes.

Benchmark U.S. 10-year Treasury yields hovered at 3%, a key psychological level, for a second straight day on Tuesday, while the dollar held near 20-year highs, making greenback-priced gold less attractive for overseas buyers. [USD/] [US/]

"Spot gold pierced below support targets last seen in mid-February 2022 and looks to test subsequent levels as fundamentals look to align with bullion bears," DailyFX analyst Warren Venketas said in note.

"The dollar remains favoured with the U.S. economy being able to withstand such aggressive tightening regardless of external factors leaving gold exposed to a lengthy drop."

While gold is perceived as an inflation hedge, higher U.S. interest rates and bond yields lift the opportunity cost of holding zero-yield bullion.

Spot silver dipped 0.1% to $22.61 per ounce, platinum firmed 0.8% to $942.71, and palladium rose 0.6% $2,230.20.