Gold drops on stronger dollar
Spot gold dropped 1.9% to settle at $4,110.11/oz, while gold futures slid 1.8% to settle at $4,129.00/oz
Gold prices shed nearly 2% on Tuesday, weighed down by a stronger dollar which was boosted by rising expectations of U.S. central bank interest rate hikes. Meanwhile, risk sentiment was muted as a worldwide tech sell-off outweighed easing geopolitical concerns and falling oil prices.
Spot gold dropped 1.9% to settle at $4,110.11/oz, while gold futures slid 1.8% to settle at $4,129.00/oz.
Precious metal market participants were still digesting the U.S. central bank’s latest actions. The central bank last Wednesday revealed a much more hawkish Summary of Economic Projections (SEP) than expected.
The central bank also gave markets a lot to digest after new chair Kevin Warsh laid out a sweeping vision of change for the central bank and announced the creation of five task forces to look into operations central to monetary policy.
According to the CME FedWatch tool, the odds of a quarter-point rate hike at the central bank’s July monetary policy committee meeting have now surged to over 36% from 8.5% a week ago.
Higher rate environments tend to weigh on non-yielding assets such as gold. They also tend to strengthen the dollar, and the U.S. dollar index on Tuesday was indeed higher, hitting levels not seen since mid-May 2025. A stronger dollar also weighs on bullion.
Fed repricing together with resilient U.S. macro data has played the primary role in pushing gold lower. This new ‘problem’ became evident once gold began diverging from oil last month. Our revised base case is for gold to reach USD 4,800/oz in Q4, consistent with an indefinite Fed hold, while a risk case of pricing 3-4 Fed hikes may bring gold to USD 3,800/oz, Deutsche Bank’s Michael Hsueh said on Monday.
The first FOMC meeting with Chair Warsh revealed no resistance to market pricing for hikes. The FOMC press conference underlined potential for a further hawkish shift, supported by a Taylor rule prescription some 80 bps higher, he said.
On the dovish side, our house call remains for an indefinite hold near neutral, market-based measures of inflation expectations are declining with oil, and the SEP dot plot median showed only one hike followed by a reversal next year compared with 48 bps priced by the market through Mar’27, Hsueh added.