Bengaluru — Gold prices eased on Wednesday as the dollar climbed higher on expectations of a less dovish US Federal Reserve, ahead of a testimony from the its chair Jerome Powell.

Spot gold was down 0.4% to $1,392.50/oz as of 4.10am GMT.

US gold futures slipped 0.4% to $1,394.90/oz. 

“A stronger US dollar is clearly weighing on gold prices. Overall, it appears that the markets are backing away from their more dovish stance given that we have important minutes being released by the US Fed,” said Michael McCarthy, chief market strategist at CMC Markets.

“Also, people are locking in gains and reducing positions ahead of those key events,” he added.

The minutes from the Fed’s previous meeting will be released later in the day.

The dollar edged toward a three-week high against a basket of major currencies on Wednesday, as fading expectations of an aggressive US interest rate cut pushed Treasury yields higher.

A stronger dollar makes gold costlier for holders of other currencies.

Further gains in the greenback depend on the tone Federal Reserve chair Jerome Powell strikes during two days of congressional testimony.

­“Fading US rate cuts expectations have imposed considerable headwinds on bullion’s appeal as traders pivot towards a strong recovery in the US dollar,” Phillip Futures said in a note.

Expectations for a 50-basis-point rate cut in July have evaporated, but investors still expect a 25-basis-point cut due to weak inflation and trade war worries.

Lower interest rates would support gold because they reduce the opportunity cost of holding non-yielding bullion.

On the trade front, White House economic adviser Larry Kudlow said US and Chinese trade officials held a “constructive” phone conversation on Tuesday.

Commerce secretary Wilbur Ross said the US government will issue licences to companies seeking to sell goods to China’s Huawei where there is no threat to national security.

Meanwhile, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.22% to 794.08 tons on Tuesday from 795.80 tons on Monday.

Spot gold is biased to break a support at $1,387/oz and fall into a range of $1,366-$1,377, according to Reuters technical analyst Wang Tao.

Among other precious metals, silver fell 0.2% to $15.07/oz and palladium lost 0.1% to $1,545.50/oz.

Platinum was steady at $806/oz.