Gold poised for biggest monthly drop since 2008 amid Fed rate hike expectations

Gold prices fell on Tuesday and were on track to face their biggest monthly decline since October 2008, as geopolitical uncertainty in the Middle East led to expectations of Federal Reserve rate hikes to curb elevated inflation.

Spot gold was down 0.8% at $3,985.57 per ounce, as of 0613 GMT, shedding 12% so far in June in what could be its fourth ‌consecutive monthly decline, as per a report by Reuters. ⁠U.S. ⁠gold futures for August delivery lost 1% to $3,999.20.

The yellow metal bullion was also set for its first quarterly fall since 2024, and the largest since 2013’s June quarter, as the US-Iran war led to a sharp rise in energy prices, thereby fuelling inflation worries and rate hike bets.

“You have high inflation, high interest rate expectations, and a strong dollar, and that’s overriding all other bullish factors that are typically associated with a gold ⁠rally,” said ‌Edward Meir, an analyst at Marex, in a report by Reuters.

In a high-interest-rate environment, Gold may lose its appeal as a traditional hedge against inflation.

At least three Fed rate hikes are expected this year by traders, who are currently pricing in about a 64% chance of a September increase, according to the CME FedWatch Tool.
The June ADP employment and nonfarm payroll data due this week will further help investors gauge the Fed’s stance on rate hikes.The US dollar strengthened and was headed for another monthly gain, which led to a rise in gold prices for holders of other currencies, as the greenback-priced bullion got more expensive.

Oil prices were set to witness their sharpest quarterly fall since 2020, while investors awaited the result of the Iran-US talks in Doha this week, despite Iran stating that no meeting has been scheduled.

“Gold ⁠bulls need at least one of three things to improve: lower real yields, a softer USD or a clearer unwind in hawkish Fed expectations,” said OCBC precious metals strategist Christopher Wong, in a report by Reuters.

According to Wong, rallies are likely to fade and gold may spend more time consolidating below previous highs, if no improvement takes place.

Spot silver slipped 1.3% to $57.53 per ounce, platinum lost 0.7% to $1,563.25, while palladium gained 0.4% to $1,218.07. All three metals were headed for quarterly and monthly losses.