Gold fell 1.3% to $4,051.29 per ounce at 1:31 p.m. in New York, declining from recent highs as an intervention-driven rally in the yen stalled. According to Bloomberg, the dollar recovered ground against the yen on Friday, helping to snap a five-day run of losses for the greenback. The yen had advanced as much as 3.3% versus the greenback in New York trading on Thursday, marking the most on an intraday basis since December 2023. A stronger US currency reduces the appeal of gold to many international buyers, contributing to the recent decline. Spot gold had added 0.9% in each of the previous two sessions before the latest pullback, with the metal still on track for a narrow monthly gain in July, its first since February.
The Fed left interest rates unchanged as widely expected, with Chair Kevin Warsh pledging an unwavering commitment to bring inflation down, leaving markets confused about just what he was prepared to do. According to Bloomberg, Warsh insisted the latest decision wasn't a sign of inertia at the US central bank, saying that "if inflation continues to be elevated through the forecast period, interest rates could well be part of that solution, but I wouldn't say it's in isolation." The 9-3 vote in favor of leaving borrowing costs unchanged also revealed conviction among some policymakers that a rise will eventually be needed to meet the central bank's inflation target of 2%. Markets are now pricing in a 63% chance of a rate hike in September, down from about 80% prior to the policy meeting. Helen Amos, an analyst at BMO Capital Markets Ltd, noted that "the messaging from Warsh is that inflation is not alarming, outside of the energy price effect," with the Jackson Hole Economic Policy Symposium in late August potentially being the next big catalyst for gold.
The Personal Consumption Expenditures Price Index fell 0.1% month-on-month in June, its weakest reading since April 2020, according to the latest data. As per CNBC TV18, Bart Melek, global head of commodity strategy at TD Securities, noted that "the environment on the inflation side is more or less stable." However, the easing is likely to be temporary as renewed hostilities in the Middle East raise oil prices, which could reverse the inflationary pressures that were reversed over the last few months. The Fed's preferred inflation gauge remains above the 2% target, giving policymakers reason to consider further tightening measures. Cooling inflation strengthens expectations that the Fed may not need to tighten monetary policy as aggressively, which is generally supportive for gold prices.
The US and Iran exchanged strikes again this week, with Washington hitting "dozens" of targets in Iran on Wednesday in response to attacks on American military bases in the region. According to Bloomberg, Saudi Arabia has discussed the formation of a multinational alliance to protect shipping in and near the Red Sea. A drone strike that sparked fires on two gas vessels in Egypt's Mediterranean port of Damietta has raised a new threat to shipping through the Suez Canal, one of the last major export routes available to Saudi oil amid the expanding U.S.-Iran war. The strike signalled a potential new front in the U.S.-Iran war, raising the prospect of threats to navigation through the Suez Canal. Escalating tensions involving the United States, Iran and Iran-backed Houthi forces have renewed safe-haven demand, providing continued support for gold prices. Gold is down by more than a fifth since the US-Iran war began more than five months ago, with high energy prices stoking inflationary pressures and raising the likelihood that rates will stay higher for longer.
Despite the latest correction, many market experts continue to see a favourable medium- to long-term outlook for gold. The World Gold Council believes current prices broadly reflect an environment of moderate economic growth, cooling but still elevated inflation, and expectations of only limited additional central bank tightening. Under these conditions, it expects gold to remain largely range-bound within around 5% of current levels. Jefferies Global Head of Equity Strategy Christopher Wood believes investors should once again start building exposure to the yellow metal, stating "The time has come for investors to start accumulating gold and gold mining stocks again after an extended pause to refresh." In a recent Greed and Fear report, Wood argued that the investment boom surrounding artificial intelligence could eventually resemble the dot-com bubble, suggesting similar outcomes if the current AI investment cycle unwinds. Colin Shah, Managing Director of Kama Jewelry, believes the metal is balancing competing macroeconomic forces, noting that "the steady resilience of gold around the US$4,080 mark reflects a market balancing two powerful forces—a hawkish monetary policy and escalating geopolitical risks in the Middle East." MCX Gold is expected to trade in the ₹1,40,000-₹1,44,000 range in the near term, with the next major move depending on upcoming US economic data and expectations for Fed policy.
