Gold (XAU/USD) declined to around $4,100 during the early Asian session on Wednesday, extending its recent losses as traders increasingly anticipate a US Federal Reserve interest rate hike this year [1]. The precious metal has faced selling pressure since the outbreak of the US-Iran war on February 28, though a recent agreement between Washington and Tehran has eased energy prices. However, lingering inflation concerns have solidified market expectations for tighter monetary policy [1].
An unexpectedly hawkish Federal Reserve meeting chaired by Kevin Warsh last week further fueled expectations for a year-end rate hike, contributing to gold's downside. According to the CME FedWatch tool, traders are now pricing in an 86.1% chance of a Fed hike in December, up from 61% before last week’s FOMC meeting [1]. Deutsche Bank AG analyst Michael Hsueh stated, “Fed repricing, together with resilient US macro data, has played the primary role in pushing gold lower.” Deutsche Bank has cut its gold price forecast to $4,300 for the third quarter, down by more than a fifth from its prior outlook, and to $4,800 for the final three months of the year [1].
Gold is traditionally used as a hedge against inflation but becomes less attractive when interest rates are high, as it does not yield interest [1]. The upcoming US Personal Consumption Expenditures (PCE) Price Index data for May, due later on Thursday, is expected to provide further clues about the US interest rate path this year [1].
CONCLUSION
Gold prices have come under significant pressure as market participants increasingly expect the Federal Reserve to raise interest rates in response to persistent inflation. With traders now assigning a high probability to a December rate hike and analysts lowering their price forecasts, the outlook for gold remains bearish in the near term.