Gold prices declined on Tuesday to erase all of last day’s gains, as investors brace for a potentially divisive Federal Reserve decision on interest rates this week.
Spot gold fell as much as 1.5% to just above US$4,010 ($5,750) an ounce, a new one-week low. The metal had rallied the previous day after inflation concerns eased following a pause in the US-Iran strikes.
Since the war started in late February, bullion has spiralled downwards due to concerns over inflation. During the five months, gold has experienced a 25% drop, now trading at levels last seen in November.
Despite continued efforts to resolve the Middle East conflicts and now a temporary pause in fighting, the inflationary fallout of the war still lingers. A prolonged inflation puts pressure on central banks to raise interest rates, a scenario that hurts gold.
All attention will be on the Fed’s stance on interest rates this week, as policymakers balance June’s better-than-expected inflation reading and the more recent rise in oil prices.
“Elevated energy prices remain an inflationary concern for Fed members, and the expected hawkish tilt by the Fed has forced interest rate hike expectations and the US dollar higher, applying pressure on the gold market,” David Meger, director of metals trading at High Ridge Futures, told Reuters.
Interest-rate swaps imply about a 33% chance of a rate hike at the upcoming meeting, representing a relatively high degree of uncertainty so close to a Fed decision.
In a dent to markets, Citadel Securities said it expects a hike this week, a move it argues would strengthen Fed Chairman Kevin Warsh’s credibility in the battle with inflation.
“Even if the Fed leaves rates unchanged, a hawkish message or a clear signal that further tightening remains under consideration could lend support to real yields and the US dollar, temporarily capping gold’s recovery,” Christopher Wong, a strategist with Oversea-Chinese Banking Corp., told Bloomberg.
Forecasts fall
In anticipation of high rates, analysts have cut their gold price forecasts for the first time since late 2023, according to a poll run by Reuters.
A survey of 29 analysts and traders conducted over the past three weeks returned a median gold price forecast of US$4,509 per ounce for 2026, compared with US$4,916 estimated three months ago.
The average forecast for 2027 has also been lowered to US$4,610 per ounce, down from US$5,100 before, the poll results show.
Write to Jackson Chen at Mining.com.au
Image: Pixabay
