Gold prices steadied on Thursday, hovering around $4,105.40 per ounce, after experiencing a drop to its lowest level since July 1 on Wednesday. This stability comes as traders weigh escalating tensions in the Middle East against concerns about the Federal Reserve's monetary policy. The US military confirmed continued strikes on Iran, aimed at keeping the Strait of Hormuz open, which provoked retaliatory actions from Iran against Kuwait and Bahrain. US President Trump declared the ceasefire effectively over and warned of further strikes and a naval blockade, despite Iran reportedly reaching out for a deal.
Adding to market uncertainty are the minutes from the Fed's June meeting, which indicated growing concerns about inflation among policymakers. While the majority kept rates steady, a minority advocated for an immediate rate hike. Markets are currently pricing in a 63% chance of a rate hike in September and an 87% chance by January 2027, according to the CME FedWatch tool. This hawkish sentiment and the prospect of "higher-for-longer" interest rates are generally detrimental to non-yielding assets like gold.
Several financial institutions have revised their gold price forecasts downwards. Bank of America, for instance, cut its 2026 average gold forecast by 14% to $4,360 an ounce, citing a more hawkish Fed. Similarly, HSBC reduced its 2026 average gold price forecast to $4,560 per ounce from $4,864, and its 2027 forecast to $4,925 from $5,000. Despite these revisions and the headwinds from potential interest rate increases, global uncertainty and central bank demand, particularly from countries like Tanzania which bought 28 metric tons, continue to provide some underlying support for gold.
