Spot gold managed a modest rebound of 1.35% last Friday, settling at $4081.02 per ounce. However, this slight gain could not mask a stark reality: gold prices have now declined for four consecutive weeks. Since hitting a historic peak of $5596 on January 29th, the price of gold has plummeted by approximately 29%. The once sought-after safe-haven asset is now experiencing its longest weekly losing streak since 2023. Meanwhile, tensions have escalated over the Strait of Hormuz, with U.S. forces and Iran engaging in renewed clashes over the weekend. When a safe-haven asset fails to provide refuge, and its price hesitates even amid the sound of artillery, what market logic lies behind this gold sell-off? This analysis will delve into the truth and future trajectory of gold's four-week decline from three perspectives: dollar hegemony, the Federal Reserve's policy pivot, and shifting geopolitical dynamics. In early Asian trading on Monday, spot gold is trading within a narrow range around $4060 per ounce.
The Dollar's Dominant Force: The Primary Driver of Gold's Decline
Gold is priced in U.S. dollars, making the strength of the dollar a direct determinant of gold's valuation. Over the past week, the U.S. Dollar Index touched a 13-month high above 101.8, marking its second consecutive weekly gain. The strong dollar has acted like a heavy hammer, persistently weighing down gold prices.
The core driver behind this dollar strength stems from the market's aggressive repricing of the Federal Reserve's policy shift. The first policy statement from the new Fed Chair was widely interpreted by the market as a "hawkish" signal. The market quickly brought forward expectations for an interest rate hike to as early as September, triggering a sustained rally for the dollar. Analysts note that this move is not only due to the new leadership and fresh data but also because the dollar market has been in a bull phase since January, making the current minor correction unsurprising.
The dollar's strength is also evident in a key shift: the "decoupling" of gold from geopolitical risk. In the past, escalating Middle East tensions would drive safe-haven flows into gold, pushing prices higher. Now, however, news of conflict in the Strait of Hormuz triggers an initial market reaction of selling gold to buy dollars. Observers point out that the narrative for gold prices has changed. While previous U.S.-Iran conflicts saw gold rise and oil fall, showing a clear negative correlation, the price movements of these two assets now appear to be converging, both trending downward. The dollar's status as the ultimate safe-haven asset has been laid bare during this gold sell-off.
The Fed's Hawkish Pivot: A Dramatic Reversal from Cuts to Hikes
If the strong dollar is the final straw breaking gold's back, the 180-degree turn in Federal Reserve policy expectations is the first domino to fall.
Just months ago, the market was fervently debating when the Fed would cut rates. However, the inflationary shockwaves from geopolitical events have completely altered this outlook. The latest data shows the U.S. Personal Consumption Expenditures Price Index surged 4.1% year-on-year in May, with the core PCE rising to 3.4%, both at multi-year highs. Inflation is not cooling but accelerating.
The Federal Reserve's response has been swift and decisive. In the latest policy meeting, 9 out of 19 policymakers projected at least one rate hike by year-end, whereas in March, no official held such a view. The market quickly priced this in—the probability of a September hike once climbed to 70% and, even after moderating post-inflation data, remains around 59%.
What does this mean for gold? Gold is a non-yielding asset. When bond yields and real interest rates rise, the opportunity cost of holding gold increases sharply. Institutions warn that surging oil prices are pushing inflation expectations higher, forcing the market to price in tighter monetary policy, thereby elevating gold's opportunity cost. Analysts state that the rapid repricing of a hawkish Fed has created strong bullish momentum for the dollar, ultimately leading to this significant downturn in gold, with the potential for a further long-term correction towards $3400. Another institution forecasts gold could fall to $3500 by late 2026. Institutional investors are voting with their feet—gold ETFs saw outflows exceeding 15 tonnes in a single week, and several banks have suspended related precious metals trading services.
The Specter of Hormuz: Why Geopolitics Can't Save Gold
The traditional narrative for gold is that of a "safe-haven asset"—something to buy in turbulent times. Yet, the dramatic developments in the Strait of Hormuz over the past week have precisely exposed the fragility of this narrative.
In June, the U.S. and Iran announced a phased agreement and the reopening of the Strait of Hormuz. This news triggered a sharp drop in crude oil prices and significantly reduced market fears of a large-scale conflict escalation in the Middle East. Gold's geopolitical risk premium evaporated, and its price accelerated downward. Gold opened the week around $4145 but, under the sustained influence of hawkish Fed signals, broke below the key $4000 level, hitting a seven-month low of $3959.
However, the fragility of the ceasefire soon became apparent. A cargo ship was attacked in the Strait of Hormuz on Thursday, forcing a pause in international escort operations. In the early hours of Saturday, a Panama-flagged oil tanker was attacked again by an Iranian drone, prompting a new round of U.S. strikes against Iran. Senior U.S. officials issued stern warnings on social media, suggesting restraint might not continue and that ultimate measures could be taken if the situation escalates. Both sides accused the other of violating the temporary peace agreement signed just two weeks prior.
Despite such tense geopolitical developments, gold's reaction has been surprisingly muted. Friday's price managed only a 1.3% rebound, leaving the week down 1.79%. Why? Because the market has formed a new consensus: geopolitical conflict pushes oil prices higher → higher oil prices fuel inflation → inflation forces the Fed to hike rates → rate hikes boost the dollar and bond yields → gold faces downward pressure. In this transmission chain, geopolitical conflict not only fails to rescue gold but becomes a catalyst accelerating its decline.
Friday's Rebound: Technical Correction or Trend Reversal?
After four consecutive weeks of declines, Friday's rebound offered a brief respite for bulls. Spot gold rose 1.35% to $4081.02, while August gold futures settled 1.2% higher at $4096.30.
The immediate trigger for this bounce was a pullback in the dollar from recent highs following the inflation data release. The inflation figures were not as dire as some feared, and coupled with a roughly 4% drop in oil prices on Friday, led to a slight cooling of market expectations for Fed rate hikes, with the September probability dipping from 64% to 59%. The latest consumer confidence index showed some recovery, but concerns about inflation persist.
The physical market also showed some positive signs. Price declines spurred buying interest, leading to gold trading at a premium in India for the first time in a month and a half. However, demand from a major Asian consumer nation remains weak.
But does this signal a trend reversal? The prevailing view on Wall Street is negative. In various surveys, only a minority of analysts expect gold to rise in the coming week, with most forecasting further declines or consolidation. One institution anticipates the downtrend will persist in the coming weeks. Nevertheless, some independent analysts hold a different view, arguing that the market has overreacted to the Fed's hawkish stance in recent months, leading to an oversold condition in gold. They contend gold is not entering a long-term bear market but remains within a secular bull run.
Critical Week Ahead: Non-Farm Payrolls to Decide Fate
The upcoming week will be crucial in determining gold's short-term destiny.
On Wednesday, Fed Chair Warsh, European Central Bank President Lagarde, Bank of England Governor Bailey, and Bank of Canada Governor Macklem are scheduled to speak at the ECB Forum, which investors should monitor closely.
The U.S. June non-farm payrolls report will be released on Thursday (a day early due to the U.S. Independence Day holiday on Friday). Market expectations are for job additions to be broadly in line with the previous month's reading. This report carries significant weight. Stronger-than-expected jobs data would further cement market bets on Fed rate hikes, while weak data could prompt investors to push back their expectations for the timing of any tightening. Concurrently, the U.S. and Iran have agreed to halt attacks and will meet in Doha on Tuesday in an attempt to shore up a ceasefire agreement that has shown cracks just 11 days after taking effect. Iran continues to reinforce its control over the Strait of Hormuz, requiring all transiting vessels to coordinate with its Revolutionary Guard, introducing uncertainty regarding transit times and insurance premiums for the shipping industry. Investors need to watch developments and shifts in market expectations closely.
A major investment bank has significantly lowered its gold price target for late 2026. Amid the prevailing bearish sentiment, some institutions maintain a bullish stance, believing the Fed will take no action on rates this year. Another domestic securities firm suggests that if geopolitical tensions ease and oil prices and inflation decline in the second half of the year, rising market expectations for a marginal loosening of Fed monetary policy could drive gold prices higher again.
Concluding Thoughts
Gold's four-week losing streak represents a perfect storm of negative factors: a stronger dollar, rising Fed rate hike expectations, evaporating geopolitical premiums, and persistent ETF outflows. The 29% drop from the January peak has left many investors who bought at highs deeply underwater.
However, the pendulum of history never swings in only one direction. A veteran market observer provides a sober historical perspective: during the long bull market of the 1970s, gold fell about 45% from its mid-decade peak to its 1976 low before skyrocketing to a record high in 1980. In the early stages of the 2008 Great Recession, gold also plunged 30%. These historical episodes reveal a pattern: in long-term gold bull markets, sharp corrections are often part of the journey.
The structural factors that drove gold to new highs—central bank buying, geopolitical risk, elevated global debt levels, and de-dollarization trends—have not disappeared. Last year, global central banks were net buyers of over 860 tonnes of gold, and gold has surpassed U.S. Treasuries as the world's primary reserve asset.
In the short term, gold still faces significant headwinds. The non-farm payrolls report, U.S.-Iran negotiations, and speeches from Fed officials—each variable could trigger a new round of market volatility. Yet, as some strategists note, as countries produce more oil and revenues flow, these funds may not all go into U.S. Treasuries but could return to the gold market. The battle around the $4000 level may simply be a period of intense volatility within this prolonged bull market. For investors with a longer-term view, the current "golden dip" might represent a rare window for strategic positioning.
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