Spot gold breached the $4,000 per ounce threshold during Tuesday's session, hitting a low of $3,943, its lowest intraday level since November. The precious metal has fallen approximately 12.4% so far this month, primarily due to energy-driven inflation pressures from the Iran conflict, which have boosted expectations for Federal Reserve interest rate hikes and strengthened the U.S. dollar. Despite this, Goldman Sachs remains bullish on gold, maintaining its year-end price target of $4,900 and emphasizing that structural buying by emerging market central banks and long-term fiscal concerns remain supportive.
Gold Poised for Worst Month in Over 17 Years
Spot gold's decline on Tuesday saw it drop as much as 1.8% intraday. The month-to-date loss of roughly 12.4% positions it for its largest monthly drop since October 2008 if levels hold through month-end. Rising Fed rate expectations and a robust U.S. dollar have created a dual headwind, overwhelming gold's traditional appeal as a safe-haven and inflation hedge.
Goldman Sachs Maintains Bullish Stance
In response to gold's recent weakness, Goldman Sachs has reaffirmed its year-end target of $4,900 per ounce. Samantha Dart, co-head of Goldman's Commodities Research, stated in a report released Sunday, "The gold rally is not over." She cited ongoing reserve diversification by emerging market central banks and persistent market concerns about Western fiscal sustainability as the key drivers.
The combination of gold's sharp drop and Goldman's strong endorsement has intensified the battle between bulls and bears. Investor focus is now shifting to upcoming U.S. economic data, including the June ADP and non-farm payrolls reports, for further clues on the Federal Reserve's policy trajectory.
A Deepening Downturn
Spot gold settled 1% lower at $3,975.04 per ounce on Tuesday, with August futures falling 1.2% to $3,988.60. The metal is on track for its fourth consecutive monthly decline.
From a longer-term perspective, gold is also set for its worst quarterly performance since the second quarter of 2013, which would end a streak of quarterly gains dating back to 2024. Since hitting a record high in late January, gold is down over 6% for the year. Following the outbreak of the Iran conflict in late February, the decline has deepened to approximately 25%, with prices falling below key technical support levels like the 200-day moving average.
Other precious metals faced similar pressure. Spot silver fell 1.6% to $57.35 per ounce, platinum dropped 0.5% to $1,566.90, while palladium edged up 0.5% to $1,219.55. All three are facing both monthly and quarterly losses, with silver headed for its worst month since September 2011, and platinum set for its worst month since 2008 and worst quarter since January 2020.
Dual Pressure from Fed and Dollar
The core driver of this gold sell-off is inflation pressure, which has heightened expectations for Federal Reserve rate hikes. Surging energy prices following the Iran conflict have reinforced persistent inflation, leading markets to price in a more aggressive rate path.
CME FedWatch data indicates traders now expect three rate hikes this year, with the probability of a September increase priced at around 64%. "The market is facing a triple threat of high inflation, high rate expectations, and a strong dollar, which is enough to suppress all the factors that typically drive gold higher," said Marex analyst Edward Meir.
While traditionally viewed as an inflation hedge, gold's appeal as a non-yielding asset diminishes in a high-interest-rate environment. Concurrently, the U.S. dollar has appreciated over 2% this month, heading for a second consecutive monthly gain, making dollar-denominated gold more expensive for holders of other currencies.
On the technical front, Hebe Chen, an analyst at Vantage Markets in Melbourne, noted that selling pressure accelerated significantly after gold broke below recent key support levels, with initial profit-taking evolving into a deeper short-term momentum breakdown.
Goldman's Target Anchored in Structural Demand
Goldman Sachs noted in its report that gold has risen 123% since 2022 and emphasized that the structural bullish thesis remains intact.
"From a structural perspective, reserve diversification by emerging market central banks—a trend stemming from the 2022 freezing of Russian reserves—remains the core anchor for our $4,900 per ounce year-end target," Samantha Dart wrote.
A recent World Gold Council survey conducted between February and May of 76 central banks showed that a record 45% of respondents plan to increase their gold reserves over the next 12 months.
On the cyclical front, Goldman acknowledged near-term headwinds, noting that "the Fed's hawkish stance is suppressing the currency debasement narrative." However, the firm's economists' base case predicts the Fed will hold rates steady this year, with an easing cycle delayed until the second half of next year. Consequently, Goldman expects ETF holdings to gradually recover, providing a buffer against cyclical pressure. Dart also pointed out that medium-term macro concerns, such as worries over Western fiscal sustainability, will ultimately accelerate private capital diversification into gold, keeping the overall risk to their price forecast skewed to the upside.
Conditions for a Rebound
Market participants have identified clear prerequisites for bulls to regain control. OCBC precious metals strategist Christopher Wong stated in a report that gold bulls require at least one of three conditions to improve: lower real yields, a weaker U.S. dollar, or a clear dialing back of Fed hawkish expectations. Otherwise, any rally is likely to be sold into, and prices may remain in a prolonged consolidation below previous highs.
A U.S. Supreme Court ruling this week also garnered market attention. The court ruled that Federal Reserve Governor Lisa Cook could retain her position while contesting an effort by former President Trump to remove her over unsubstantiated mortgage fraud allegations. This ruling reinforces the Fed's independence, allowing it to maintain data-dependent policy decisions despite external pressure. Last week's latest inflation data, while still elevated, came in within analysts' expected range.
Investors are now awaiting the release of the June ADP and non-farm payrolls reports later this week to further assess the labor market's resilience and its implications for the Fed's policy path. These data points will serve as a key test for gold's near-term direction.
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