Gold: the edge of the precipice is drawing ever closer

• An unfavourable background is weighing on gold prices.
• The Fed has not ruled out a July rate hike.

The US dollar posted its best day in three weeks on rumours of a US military blockade of the Strait of Hormuz. The escalation of the conflict in the Middle East enabled Brent to post its best daily percentage growth since 2020. This provided support for the greenback as a safe-haven asset and the currency of a net exporter of energy commodities. All the more so as the Fed may raise rates as early as its next meeting.

Christopher Waller spoke on this matter. The official expressed concerns about an acceleration in core inflation. If this is evident from the June consumer price report, the Fed should tighten monetary policy in July. The hawkish speech has raised the probability of two rate hikes in 2026 to 58% and the odds of a rate rise later this month to 43%. As a result, the US dollar has strengthened, and Treasury bond yields have risen.

This backdrop is unfavourable for gold. It does not pay interest and is therefore unable to compete with assets that do so in a rising-interest-rate environment. At the same time, the opportunity cost of holding the precious metal in ETFs is rising, and capital outflows from specialised funds are contributing to the peak in gold prices. 

Gold recorded its second-worst daily fall of 2026 on Monday. Its losses since the start of the year have exceeded 7%. Optimists, including State Street Investment Management, believe that Asian demand for the physical asset remains stable. That said, a price drop to $3,900 per ounce would trigger a rally, allowing the precious metal to find its bottom.

In reality, the fate of Gold lies in the hands of geopolitics and the US consumer price index report. Signs of accelerating core inflation in June would give the Fed grounds to raise interest rates as early as July, further strengthening the US dollar and pushing up yields on US Treasury bonds.

Keep an eye on Kevin Warsh’s testimony before Congress, as the new Fed Chair has already sent shockwaves through the financial markets twice since taking office. His hawkish rhetoric at the press conference following the June FOMC meeting and his vague comments at the ECB symposium in Sintra sent gold on a roller coaster ride.

The FxPro Analyst Team