Gold Heads for Third Straight Weekly Loss as Stronger Dollar and Hawkish Fed Pressure Prices

BY COMFORT OGBONNA

Gold prices fell sharply on Friday and were on track to post a third consecutive weekly decline as a stronger U.S. dollar and growing expectations of further interest rate increases by the Federal Reserve reduced investor appetite for the precious metal

Spot gold dropped 1.1% to $4,156.26 per ounce by 0715 GMT, marking its lowest level since June 11. The metal has lost approximately 1.4% so far this week, extending a downward trend that has emerged as financial markets increasingly focus on monetary policy rather than geopolitical risks. U.S. gold futures for August delivery declined even further, falling 1.7% to $4,173.30 per ounce.

Trading volumes were relatively subdued due to the Dragon Boat Festival holiday, which kept financial markets in mainland China and Hong Kong closed. The reduced market participation contributed to thinner liquidity conditions and amplified price movements across commodities and currency markets.

A key factor weighing on gold was the continued strength of the U.S. dollar, which climbed to its highest level in a year against a basket of major currencies. Because gold is priced in dollars, a stronger greenback makes the metal more expensive for buyers using other currencies, often reducing international demand and placing downward pressure on prices.

The dollar’s rally has been fueled by shifting expectations surrounding U.S. monetary policy. Investors have become increasingly convinced that the Federal Reserve may need to keep interest rates higher for longer, and possibly raise borrowing costs again later this year, as policymakers seek to ensure inflation remains under control.

Market sentiment shifted significantly after the Federal Reserve signaled a more hawkish outlook during its latest policy meeting. While the central bank left interest rates unchanged, policymakers indicated growing concern about inflation risks. Nine of the Fed’s 19 policymakers now expect additional rate increases before the end of the year, reinforcing expectations that the fight against inflation is far from over.

The stronger policy stance has prompted investors to reassess the outlook for gold, which typically performs best in environments characterized by lower interest rates and weaker currencies. Unlike bonds and other interest-bearing assets, gold does not generate income, making it less attractive when rates rise and investors can earn higher returns elsewhere.

Market pricing now reflects a significant increase in expectations for future Federal Reserve tightening. According to futures market data, traders see an 87% probability of a U.S. interest rate increase by December, up sharply from 61% before the Fed’s latest policy announcement. The rapid shift in expectations has supported Treasury yields and the dollar while weighing heavily on precious metals.

Analysts noted that gold’s recent rally, which was driven in part by optimism surrounding a peace agreement between the United States and Iran, has quickly lost momentum. Investors initially viewed the agreement as a source of uncertainty that could support safe-haven demand. However, attention has now returned to central bank policy, which remains the dominant force driving global financial markets.

The influence of monetary policy has overshadowed geopolitical developments, even as questions continue to surround the durability of the U.S.-Iran peace framework. Planned talks between American and Iranian negotiators in Switzerland were called off after U.S. Vice President JD Vance canceled his visit, creating fresh uncertainty about the long-term prospects for a lasting truce.

While geopolitical tensions often boost demand for safe-haven assets such as gold, the market’s reaction has been muted as investors place greater emphasis on interest rate expectations. The combination of a rising dollar and the prospect of higher borrowing costs has proven to be a more powerful influence on gold prices than ongoing diplomatic uncertainties.

Physical demand for gold also remained mixed across major consuming nations. In India, buying activity was described as modest despite prices falling to their lowest levels in approximately two and a half months. Traders reported that continued volatility discouraged some buyers from making large purchases, even as lower prices improved affordability.

In China, the world’s largest consumer of gold, market conditions weakened further as domestic prices shifted to a discount relative to international benchmarks. The move suggested softer demand and reduced enthusiasm among buyers, adding another headwind for the global gold market.

Other precious metals also came under pressure during Friday’s trading session. Spot silver fell 1.5% to $64.81 per ounce, while platinum declined 0.8% to $1,681.53. Palladium also lost 0.8%, trading at $1,268.31 per ounce. All three metals were on track to register weekly losses as investors reduced exposure to the precious metals sector amid rising interest rate expectations and a stronger dollar.

The broader outlook for gold remains closely tied to developments in U.S. monetary policy. If inflation remains elevated and Federal Reserve officials continue signaling a willingness to tighten policy further, gold could face additional pressure in the months ahead. Conversely, any signs of slowing economic growth or easing inflation could revive expectations for lower interest rates and provide support for the metal.

For now, however, financial markets appear firmly focused on the Federal Reserve’s determination to maintain price stability. As a result, gold is struggling to attract fresh buying interest despite ongoing geopolitical uncertainties and remains vulnerable to further declines if the dollar continues its upward march and expectations for additional rate hikes strengthen.