Gold slips toward 2-1/2-month lows as Fed rate hike looms

Gold slips toward 2-1/2-month lows as Fed rate hike looms

Gold prices slipped 1% toward 2-1/2-month lows on Monday as investors braced for a large interest rate hike by the U.S. Federal Reserve, as it seeks to contain soaring inflation, denting the zero-yield bullion's appeal.

Spot gold fell 0.9% to $1,880.01 per ounce by 1000 GMT, hovering near last week's low of $1,871.81 an ounce. U.S. gold futures dropped 1.6% to $1,880.70. "Calls for more and more rate hikes by Fed officials has been setting the tone in the gold market lately, and that's also pushed up the yields on 10-year TIPS (Treasury Inflation-Protected Security)... this is providing the biggest headwinds for gold taken together with a quite a strong U.S. dollar," said Julius Baer analyst Carsten Menke.

The U.S. central bank's Federal Open Market Committee is scheduled to begin its two-day meeting on May 3 and announce its decision the next day. U.S. policymakers look set to deliver a series of aggressive rate hikes at least until the summer to deal with rapid inflation and surging labour costs, even as two reports released on Friday showed tentative signs that both may be cresting.

A rate hike of 50 basis points on Wednesday evening should come as no surprise, nor weigh additionally on