XAU/USD drops to $3,964 as Federal Reserve signals potential rate increase amid persistent inflation concerns.
Gold prices fell to a seven-month low of $3,964 on Wednesday, pressured by a stronger US Dollar and expectations of a Federal Reserve rate hike. XAU/USD traded near $4,020 after the Fed’s updated dot plot indicated most FOMC members favor at least one rate increase this year to combat inflation driven by higher energy costs.
The US Dollar Index (DXY) climbed to 101.78, its highest level since May 2025, making dollar-denominated gold more expensive for foreign buyers. Higher borrowing costs also reduced the appeal of the non-yielding metal. Recent US economic data showed robust business activity and a resilient labor market, reinforcing the Fed’s focus on its 2% inflation target.
Traders now see a 70% chance of a September rate hike, according to the CME FedWatch Tool. Upcoming US PCE and GDP data will be closely watched for further clues on monetary policy.