Gold spot and futures prices, which have been weak since late February, fell more than 1% on Tuesday. Notably, the spot gold price is poised to record its largest monthly percentage decline since October 2008. This is primarily because safe-haven demand related to Middle East geopolitical uncertainty and Western fiscal deficit pressures has been completely overshadowed by market expectations for imminent Federal Reserve interest rate hikes to combat persistently high inflation. However, according to international financial giants like Goldman Sachs, Barclays, and TD Securities, the recent sharp decline in gold prices more closely resembles a severe correction within a long-term bull market trajectory rather than a signal of its termination. They emphasize that gold, hovering around $3,900 to $4,000, is very close to the bottom of this adjustment cycle.
As of 04:20 GMT, spot gold was trading down 1% at $3,975.04 per ounce. For the month, it has already fallen a significant 12.4% and is highly likely to record its fourth consecutive monthly decline. The price of gold futures for August delivery on the US exchange fell 1.2% to $3,988.60.
As shown in the chart, gold is set to record its worst monthly performance since 2008.
Global financial markets continue to aggressively price in at least two Fed rate hikes this year, with the first potentially arriving in September. Investors are now awaiting the latest US monthly non-farm payrolls report for new clues on the Fed's monetary policy outlook. Meanwhile, the US and Iran are scheduled to resume peace agreement talks in Doha, Qatar later today, although the prospects for a lasting ceasefire remain unclear. A major sticking point concerning a key strait passage remains, following Tehran's reiteration of its plan to oversee traffic in the Strait of Hormuz, even as Oman has decided not to participate.
Hawkish Fed Outlook Overpowers Safe-Haven Narrative, Gold Heads for Worst Month Since October 2008
The price of physical gold bars is also on track for its first quarterly decline since 2024 and could post its largest quarterly drop since the June quarter of 2013. The core reason behind this undoubtedly lies in the Middle East Iran war since late February, which drove energy prices significantly higher, fueling inflation fears and fully activating market bets on Fed rate hikes.
Edward Meir, a senior analyst at Marex, stated, "What you are facing now is high inflation, high Treasury yields/benchmark rate expectations, and a strong US dollar, and this is overwhelming all other bullish factors typically associated with the rise of non-yielding gold assets."
As shown in the chart, gold also has a high probability of recording its largest quarterly decline since 2013.
Although gold is traditionally viewed as a key hedge against inflation, its appeal diminishes significantly in a high-interest-rate environment.
According to the latest compilation from the CME FedWatch Tool, interest rate futures traders generally expect the Fed to raise rates two to three times this year, with current pricing showing a probability as high as 64% for a hike in September.
Investors are anxiously awaiting this week's release of June ADP employment data and non-farm payrolls data to further gauge the Fed's inclination regarding rate hikes or broader monetary policy issues.
Since Jay Powell formally took the helm at the Fed, the US dollar has continued to strengthen and is set to record two consecutive months of gains, making dollar-denominated gold bars more expensive for holders of other currencies.
Oil prices are poised for their sharpest quarterly decline on a benchmark basis since 2020. Investors remain highly focused on the outcome of this week's talks between Iran and the US in Doha, although Iran has stated that no meetings have been scheduled yet.
Christopher Wong, a senior precious metals strategist at OCBC, said in a report, "Gold bulls need at least one of three factors to improve to regain trading advantage: falling real yields, a weaker US dollar, or a clearer fading of hawkish Fed expectations. Without these, any rebound is likely to be met with selling by global institutional funds on strength, and gold may spend more time consolidating below its previous highs."
Regarding other key precious metals prices, spot silver fell 1.6% to $57.35 per ounce; platinum fell 0.5% to $1,566.90; and palladium rose 0.5% to $1,219.55. All three metals are set to record quarterly and monthly declines. Among them, platinum is on track for its worst monthly performance since 2008 and its worst quarterly performance since January 2020.
Gold's Worst Monthly Drop Since 2008 Does Not Alter Long-Term Bullish Anchor
In the view of Wall Street financial giants like Goldman Sachs, the recent sharp decline in gold prices more closely resembles a severe, bear-market-like correction within a bull market, rather than the formal end of a long-term gold bull trajectory. The core pressure for the sharp correction in spot gold stems from the hawkish interest rate narrative combination of "high inflation – rising rate hike expectations – strong dollar – rising real rates." CME pricing showed the market once expected three Fed hikes this year, with a probability of about 64% for a September hike. This explains why gold's safe-haven attributes have temporarily failed: in a scenario where an energy shock pushes up inflation and the Fed is forced to be more hawkish, gold, as a non-yielding asset, is simultaneously pressured by rising real yields and a strengthening dollar.
However, judging from the consensus expectations of global major banks, a bottom is indeed approaching, but conditions for an "immediate major counteroffensive" are clearly still lacking. Goldman Sachs has lowered its year-end 2026 gold target from $5,400 to $4,900, citing its less aggressive expectation for Fed rate cuts in 2026. However, it still emphasizes that global central bank gold purchases of about 51 tonnes per month remain three times the level before 2022, indicating that the strongest long-term supportive logic for the gold bull market has not completely disappeared.
The latest assessment from Bart Melek, a senior strategist at Wall Street asset management giant TD Securities, holds more significance from a trading perspective: gold prices may first fall below $3,900 per ounce to complete the phased bottom of this bear-market-style adjustment, before rebounding to above $5,300 by 2027. The logic is that short-term oil prices and inflation pressures are suppressing gold, but once inflation pressures ease post-Iran war, rates decline, and the dollar weakens, the "currency debasement trade" and the exceptionally strong buying force led by central banks will once again dominate gold trading sentiment.
European asset management giant Barclays maintains its bullish target prices of $4,791 for 2026 and $4,900 for 2027, and believes that around the current fair value of approximately $4,150, the risk-reward ratio for investors to re-enter has improved. Barclays points out that considering the previously highly extended technical picture and significant overreaction relative to macro factors (especially real rates), this round of gold adjustment is not surprising.
From a broader structural perspective, Barclays believes that multiple long-term tailwinds for gold remain intact. First, the trend of de-dollarization continues to evolve, gradually eroding demand for the US dollar as a reserve currency. Second, developed market central banks' long-term tendency to tolerate inflation slightly above target will continue to erode the purchasing power of fiat currencies like the euro. Third, expectations of currency depreciation stemming from fiscal deficit expansion and tariff policies in Western nations like the US and Japan grant gold additional premium support beyond historical correlations. Fourth, the latest global central bank gold purchase data shows structural demand remains very solid. Furthermore, Barclays believes that as geopolitical tensions stabilize, emerging market central banks that previously sold gold reserves may restart accumulation.
In the options market, according to the latest forecast from Barclays' derivatives strategy team, market positioning and option pricing metrics have significantly normalized from extreme levels seen earlier in the year. The Barclays derivatives team stated that the most noteworthy development is undoubtedly that call option implied volatility has reversed from a deep premium at the start of the year to its lowest level in nearly a decade, while put option skew has risen to near decade-highs due to recovering hedging demand. This significant structural shift in the gold options market implies that the cost-effectiveness of capturing asymmetric upside gains through options has greatly improved. The overall market sentiment clearing also lays a healthier technical foundation for a new round of gold appreciation.
International bank UBS expects gold prices to potentially rebound to around $5,200 over the next year, with core reasons being a weaker US dollar, continued central bank purchases, and market misinterpretation of the future direction of Fed monetary policy. In other words, in the view of these financial giants, the $3,900–$4,000 region may become the "pressure bottom zone" for the second phase of the gold bull market. However, in the short term, it remains a repeated tug-of-war between downward momentum and long-term central bank/fiscal deficit/de-dollarization buying forces. If non-farm payrolls and inflation data continue to reinforce rate hike expectations, gold prices may still complete one final decline before launching a more substantial super-rebound.
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