Gold prices are experiencing their biggest monthly decline since October 2008 and are on track for their first quarterly fall since 2024, and the largest since the June quarter of 2013. Spot gold was down 0.8% at $3,985.57 per ounce by 0613 GMT, shedding 12.1% in June. US gold futures for August delivery lost 1% to $3,999.20. This significant drop is attributed to rising inflation fears, which have led to increased expectations for US interest rate hikes, making the non-yielding asset less attractive. The strengthening US dollar also makes gold more expensive for international buyers.
Analysts like Edward Meir from Marex note that high inflation, high interest rate expectations, and a strong dollar are currently overriding any bullish factors typically associated with gold rallies. Traders are now pricing in approximately three Federal Reserve rate hikes for the year, with a 64% chance of an increase in September, according to the CME FedWatch Tool. OCBC precious metals strategist Christopher Wong emphasized that for gold to rally, there would need to be improvements in real yields, a softer dollar, or a clearer de-escalation of hawkish Fed expectations.
While gold is traditionally considered a hedge against inflation, its appeal diminishes in a high-interest-rate environment. The shift in investor sentiment is further highlighted by continued sales from gold-backed exchange-traded funds, indicating a lack of usual support for the metal. Despite these headwinds, central bank demand remains a potential bright spot, with institutions adding to their holdings at the fastest pace in over a year during the first quarter and indicating intentions to purchase more. However, this demand has not been enough to counteract the other bearish factors.
Other precious metals also saw declines, with spot silver falling 1.3% to $57.53 per ounce, platinum losing 0.7% to $1,563.25. Palladium, however, gained 0.4% to $1,218.07. All three metals were also headed for monthly and quarterly losses. Investors are closely watching upcoming US employment data, including the ADP employment report and nonfarm payrolls, for further indicators on the Federal Reserve's policy direction.
