Gold prices in international markets fell below the $4,000 level under the influence of a strengthening US dollar and expectations that the US Federal Reserve (Fed) will tighten its monetary policy.
According to the Wall Street Journal, the dollar's appreciation made gold more costly for buyers outside the US, while the possibility of a rate hike, which increases the opportunity cost of holding a non-yielding asset, led long-term investors to start a wave of selling.
As of Friday, spot gold was trading at $3,991, down 0.9%, and near its lowest levels since last November. The yellow metal has declined about 29% from its peak of $5,594.82 seen on January 29.
Inflation and dollar pressure continue
According to ANZ bank analysts, concerns that high inflation will persist led to a reassessment of monetary policy expectations. The Fed's hawkish stance weakened the portfolio diversification trades that gold benefited from in its previous rally wave.
Saxo Bank Senior Commodity Strategist Ole Hansen said the break of the $4,000 level dampened sentiment and deepened the correction from the January peak. Hansen said the strong dollar and outflows from gold-backed exchange-traded funds are the main pressure factors in the market.
According to Saxo Bank data, gold has fallen 8.4% on a total return basis since the start of the year, but is still up 18.5% over the 12-month period. This shows that the current sell-off has not wiped out last year's gains, but reveals the fragility of positions after a prolonged rally.
Relationship with traditional factors being re-established
The Wall Street Journal wrote that the Fed's latest meeting has reshaped gold's relationship with traditional dynamics. It was stated that the increase in geopolitical risks is no longer enough to support gold on its own, and that markets read the Fed's message as being ready to give more priority to price stability.
Bloomberg, meanwhile, reported that despite keeping rates unchanged, the Fed signaled that it could raise rates this year, with nine officials forecasting at least one rate hike in 2026.
Central banks continue buying
According to a survey by the World Gold Council, central banks have accumulated an average of 1,000 tonnes of gold annually over the past four years. This is twice the average of about 500 tonnes in the previous decade. 89% of respondents expect an increase in global central bank reserves over the next 12 months.
While 45% of respondents expect their own institutions to increase gold holdings, 74% believe the dollar's share of global reserves will decline moderately or significantly within five years.
Restrictions on individual trading in China
According to a Bloomberg report, ICBC and Bank of Guangzhou, two of China's largest banks, have begun closing services that mediate precious metal trading for individual customers. ICBC announced that it will stop its individual brokerage services on the Shanghai Gold Exchange after July 24.
Song Jiangchen, a researcher at the Guangdong South Gold Market Academy, said this step would not have a major impact because banks had already restricted the opening of new individual positions. Banks justified the decisions with risk management.
Major banks' forecasts
JP Morgan stated on June 9 that central bank demand could push gold to around $6,000 by the end of 2026 and $6,300 is possible in 2027. Goldman Sachs, on the other hand, lowered its end-2026 forecast from $5,400 to $4,900.
UBS also lowered its end-2026 forecast from $5,900 to $5,500, while maintaining a positive outlook in the long term supported by central bank demand and reserve diversification. Morgan Stanley, in a note published in May, wrote that gold's path to $5,200 is now more difficult.
Saxo Bank emphasized that for buyers to gain confidence, selling in gold-backed exchange-traded funds must subside and the dollar must lose momentum. The bank reported that precious metals are currently being driven more by positioning and technical factors than by fundamentals.
