Gold prices dropped nearly 1.50% on Friday, with XAU/USD trading at $4,045, as the US Dollar recovered following Japanese intervention in the foreign exchange markets, which had previously driven the Greenback to a 30-day low before rebounding, according to the US Dollar Index (DXY) [1]. Despite the DXY being down 0.05% at 99.91, soaring US Treasury yields pressured gold, with the 10-year Treasury note yielding 4.745%, up almost seven and a half basis points, as investors weighed the possibility of further Federal Reserve rate hikes to combat inflation [1].
US economic data released on Thursday indicated that economic growth slowed in Q2 2025, with GDP dropping from 2.1% in Q1 to 1.5% quarter-over-quarter. The Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, registered at 3.3% year-over-year, down from 3.4%, which provided some relief to the central bank and contributed to the decision to keep rates unchanged on Wednesday [1].
Three FOMC members who voted for rate hikes explained their positions: Dallas Fed's Lorie Logan cited upward-tilting inflation risks, Cleveland Fed's Beth Hammack argued the policy rate remains insufficiently restrictive, and Minneapolis Fed's Neel Kashkari favored a gradual 25 basis point increase over more aggressive moves [1]. Money markets responded by trimming hawkish bets, with the probability of a September rate hike dropping from nearly 60% to 31%, and the odds of a rate hold rising to nearly 70%, according to Prime Terminal data [1].
Consumer sentiment showed improvement, with the University of Michigan Consumer Sentiment for July rising from a preliminary 54.4 to 55.2, while inflation expectations remained steady at 4.2% for one year and 3.3% for five years. Joanne Hsu, Director of the Survey of Consumers, noted broad-based improvements across all demographic groups [1]. Geopolitical tensions, particularly the escalation of the Gulf War, kept oil prices elevated, with West Texas Intermediate (WTI) trading above $84.00 per barrel, presenting an additional headwind for gold [1].
CONCLUSION
Gold faced significant downward pressure due to rising US Treasury yields, Fed policy uncertainty, and persistent inflation risks. While consumer sentiment improved and inflation data eased slightly, the market remains cautious, with rate hike expectations subdued and geopolitical factors adding to volatility. The outlook for gold will depend on future Fed decisions and ongoing economic data.