Photo illustration of gold bars reflects recent movements in gold prices caused by inflation concerns and central bank policy outlook, December 23, 2025 in Brussels, Belgium. (Photo: Jonathan Raa/NurPhoto via Getty Images)
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On Thursday, gold fell to a six-month low as investors exited a once-strong trade as concerns that rising inflation would force the Federal Reserve to raise or at least keep rates unchanged this year.
But other factors are also at play.
August gold futures It hit $4,046.20 an ounce on Thursday, its lowest since November. Gold has fallen 6.3% this week alone, marking the second straight weekly decline and the worst week since mid-March, when gold fell 9.62%.
It last fell 0.5% to $4,111.10 an ounce.
Fed reversal
As a safe-haven asset, investors gravitate towards the yellow metal during times of market uncertainty, with the hope that the yellow metal will act as a hedge against inflation. However, because gold does not produce anything, it is particularly sensitive to expectations of long-term real interest rates.
The Iran war, now in its fourth month, is driving up energy and other prices and accelerating inflation.
U.S. consumer inflation rose at the fastest pace in three years in May, mainly due to higher prices for energy-related products. That, combined with a better-than-expected May jobs report, raised expectations that the Fed would need to raise interest rates by the end of the year to curb price increases.
When Kevin Warsh holds his first meeting as Fed chairman next week, the Fed is expected to keep its benchmark lending rate unchanged at 3.50% to 3.75%. A majority of economists polled by Reuters expect interest rates to remain unchanged this year, after expecting multiple rate cuts at the start of the year.
Traders are less optimistic, currently pricing in a 67% chance the Fed will raise rates by December, according to CME Group’s FedWatch tool.
If higher interest rates help curb inflation, dollar-denominated assets such as U.S. Treasuries could become more attractive.
Technical breakdown
Based on price chart analysis, the overall technical situation of gold remains weak.
Gold recently fell below its 200-day moving average for the first time since September 2023, which Citigroup noted as a significant negative signal. The bank has been cautious about gold for the time being since the war escalated in March, due in part to rising energy costs due to the closure of the Strait of Hormuz.
Longer term, Citi remains bullish.
“While market participants are concerned about the near-term outlook, which largely depends on the outcome of the Strait of Hormuz, the consensus remains constructive over the medium to long term, with strong non-cyclical demand due to increasing global geopolitical fragmentation, concerns about prolonged sovereign debt and land degradation, and a continued trend toward diversification of central bank reserves,” Citi analysts said.
Withdrawal from “degrading trade”
JPMorgan believes there will be a widespread reversal of “downgrade trading” by individual and institutional investors.
The withdrawals from the deal, which started appearing a few weeks ago, have continued in recent weeks.
The bank cited weak futures positions due to outflows from gold exchange-traded funds (ETFs) and growing concerns about the size of government deficits, the long-term inflation backdrop and heightened geopolitical uncertainty beyond 2022.
“Our momentum signal framework also indicates a continued pullback from downside trading. The pattern since the start of the Iran conflict is similar to ETF flows and futures positioning agents,” the bank noted.
Gold ETFs saw about $20 billion in outflows in the week ending June 5, following modest inflows the previous week, while Bitcoin ETFs saw a modest increase in outflows over the past four weeks, according to JPMorgan analysis.
In the futures space, investors continued to eliminate exposure to downside trades. The bank noted that returns to gold began at the end of February and have been stable since mid-April.
