Gold prices fell over 1% on Tuesday, heading for their largest monthly decline since October 2008, as concerns over the Middle East conflict lessened and expectations for higher US interest rates to combat inflation grew. Spot gold dropped 1% to $3,975.04 per ounce, accumulating a 12.4% loss for June, marking its fourth consecutive monthly fall. US August gold futures also decreased by 1.2% to $3,988.60. This trend positions bullion for its first quarterly decline since 2024 and its most significant quarterly drop since mid-2013, driven by rising energy prices from the Iran conflict that fueled inflation concerns and strengthened bets on Federal Reserve rate hikes.
Markets are now anticipating three US Federal Reserve rate hikes this year, with traders assigning a 64% probability to a September increase, according to the CME FedWatch Tool. Analysts like Edward Meir of Marex note that high inflation, strong interest rate expectations, and a robust dollar are currently overriding typical bullish factors for gold. Christopher Wong, a precious metals strategist at OCBC, added that for gold to rally, either real yields need to fall, the dollar needs to soften, or hawkish Fed expectations need to unwind. Further clues on the Fed's policy path are expected from the US ADP employment report and nonfarm payrolls data later this week.
The US dollar strengthened, on track for its second consecutive monthly gain, which makes dollar-priced gold more expensive for international buyers. Meanwhile, oil prices were headed for their sharpest quarterly decline since 2020 amid potential US-Iran talks in Doha, despite Iran's denial of any scheduled meeting. Other precious metals also saw declines: spot silver fell 1.6% to $57.35 an ounce, platinum slipped 0.5% to $1,566.90, and palladium rose 0.5% to $1,219.55. All three are also projected to record monthly and quarterly losses.
Despite the immediate downturn, some analysts maintain a positive long-term outlook for gold. Goldman Sachs' Global Commodities Research team forecasts $4,900 per ounce by year-end 2026, citing central bank reserve diversification and ongoing physical demand. UBS similarly projects a 28% surge over the next 12 months to approximately $5,200 an ounce, suggesting investors might be overestimating the Fed's hawkishness and anticipating a weaker dollar.
