Gold prices weakened significantly on Wednesday, hitting a fresh seven-month low and trading around $4,020 after briefly touching $3,964 earlier in the US session. This decline is largely attributed to hawkish Federal Reserve expectations and a strengthening US dollar. The US Dollar Index (DXY) reached a more than one-year high, making dollar-denominated gold more expensive for international buyers and higher borrowing costs reduced the appeal of the non-yielding asset. Futures for August delivery declined 1.1% to $4,105.40.
Traders are increasingly pricing in the likelihood of a Fed rate hike, with a 70% chance of an increase in September, according to the CME FedWatch Tool. The Fed's updated dot plot indicated that a majority of Federal Open Market Committee (FOMC) members are leaning towards at least one rate hike this year to combat inflation, driven by higher energy costs. Robust US economic data, showing expanding business activity and a strong labor market, further enables the Fed to focus on its 2% inflation target.
Several major financial institutions have revised their year-end gold price forecasts downwards. Goldman Sachs cut its end-2026 target by $500 to $4,900 per ounce, while UBS lowered its year-end forecast to $5,500 from $5,900. Deutsche Bank warned that gold could fall to $3,800 an ounce if the Fed implements multiple rate hikes. ING analysts now expect gold to average $4,300 in Q3 2026 and $4,600 in Q4, down from previous projections of $4,850 and $5,000, respectively.
Technically, gold (XAU/USD) is in a bearish phase, trading below its 200-day, 50-day, and 100-day Simple Moving Averages. A sustained move below $4,000 could lead to further declines towards $3,900 and potentially $3,800. Initial resistance is seen around the 200-day SMA at $4,473, followed by the 50-day SMA at $4,498 and the 100-day SMA at $4,700. The metal is expected to remain under pressure while trading below these resistance levels.
