Gold spot and futures prices, which have been weak since late February, fell more than 1% on Tuesday. The spot price, a key market focus, is on track for its worst monthly decline since October 2008. This is largely because safe-haven demand related to Middle East geopolitical uncertainty and Western fiscal deficits has been completely overshadowed by market expectations for imminent Federal Reserve interest rate hikes to combat persistently high inflation. However, major international financial institutions like Goldman Sachs, Barclays, and TD Securities view the recent sharp drop in gold prices as more akin to a severe correction within a long-term bullish trajectory, rather than the end of the gold bull market. They emphasize that gold, hovering around the $3,900 to $4,000 range, is very close to the bottom of this adjustment cycle.
As of 04:20 GMT, spot gold traded 1% lower at $3,975.04 per ounce. It has fallen a significant 12.4% month-to-date and is highly likely to record its fourth consecutive monthly decline. Gold futures for August delivery on a U.S. exchange fell 1.2% to $3,988.60. As the chart above shows, gold is set for 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 U.S. monthly non-farm payrolls report for new clues on the Fed's monetary policy outlook. Meanwhile, the U.S. and Iran are scheduled to resume peace agreement talks in Doha, Qatar later today, although prospects for a lasting ceasefire remain unclear. A major choke point issue persists after Tehran reiterated its plan to oversee traffic in the Strait of Hormuz, even as Oman decided not to participate.
Hawkish Fed Outlook Overwhelms Safe-Haven Narrative, Driving Gold Toward Worst Monthly Drop Since 2008
Bullion is also on track for its first quarterly decline of 2024 and could post its largest quarterly drop since June 2013. The core reason is that since late February, the Iran-Israel conflict in the Middle East has driven energy prices significantly higher, stoking inflation fears and fully activating market bets on Fed rate hikes. Edward Meir, a senior analyst at Marex, stated, "What you have now is high inflation, high Treasury yields/rate expectations, and a strong dollar, and that is overwhelming all the other positive factors normally associated with a rally in non-yielding gold." As shown in the chart above, gold also has a high probability of recording its largest quarterly decline since 2013. Although gold is traditionally seen as a key inflation hedge, its appeal diminishes sharply 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 hike rates two to three times this year, with current pricing indicating a probability as high as 64% for a September hike. Investors are anxiously awaiting this week's release of June ADP employment and non-farm payrolls data to further gauge the Fed's leaning on rate hikes or broader monetary policy issues. Since Jay Powell's formal leadership at the Fed, the U.S. dollar has continued to strengthen and is set for a second consecutive monthly gain, making dollar-denominated bullion more expensive for holders of other currencies. Oil is set for its sharpest quarterly benchmark decline since 2020, and investors remain highly focused on the outcome of this week's Iran-U.S. talks in Doha, although Iran stated no meetings have been scheduled yet.
Christopher Wong, a senior precious metals strategist at OCBC, noted in a report, "Gold bulls need at least one of three factors to improve to gain a trading edge: lower real yields, a weaker dollar, or clearer signs of fading Fed hawkishness. Without these, rallies are likely to be sold into by global institutional money, and gold may spend more time consolidating below previous highs."
Regarding other key precious metals, spot silver fell 1.6% to $57.35 per ounce; platinum dropped 0.5% to $1,566.90; and palladium rose 0.5% to $1,219.55. All three metals are set for quarterly and monthly declines. Platinum prices are on track for their worst monthly drop since 2008 and worst quarterly drop since January 2020.
Gold's Worst Monthly Drop Since 2008 Doesn't Alter the Long-Term Bullish Anchor for Precious Metals
In the view of Wall Street giants like Goldman Sachs, the recent sharp decline in gold prices resembles a severe, bear-market-like correction within a bull market, not the formal end of the long-term gold bull trajectory. The core pressure for spot gold's significant correction 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 at one point expected three Fed hikes this year, with about a 64% probability for a September hike. This explains why gold's safe-haven attributes have temporarily failed: in a scenario where an energy shock pushes inflation higher and forces the Fed to be more hawkish, gold, as a non-yielding asset, is simultaneously pressured by rising real yields and a strong dollar. However, judging from the consensus expectations of global banks, a bottom is indeed approaching, though conditions are still clearly lacking for an immediate, massive rebound.
Goldman Sachs lowered its year-end 2026 gold target from $5,400 to $4,900, as it no longer aggressively expects 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 pre-2022 level, indicating that the strongest long-term supportive logic for the gold bull market has not completely vanished.
The latest assessment from Bart Melek, a senior strategist at Wall Street asset management giant TD Securities, holds more significance for trading: gold prices may first break below $3,900 per ounce to complete the phased bottom of this bearish-style adjustment, before rebounding above $5,300 by 2027. The logic is that near-term oil prices and inflation pressures are suppressing gold, but once post-Iran war inflation pressures ease, rates decline, and the dollar weakens, the "currency debasement trade" and exceptionally strong buying 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, believing that the current level around $4,150 near fair value has improved the risk-reward ratio for investors re-entering the market. Barclays notes that given previously highly extended technical conditions and significant overreaction to relative macro factors (especially real rates), this gold correction is not surprising. From a broader structural perspective, Barclays believes multiple long-term tailwinds for gold remain intact. First, the trend of de-dollarization continues to evolve, gradually eroding demand for dollar reserves. Second, developed market central banks' long-term tendency to tolerate inflation slightly above target will persistently erode the purchasing power of fiat currencies like the Euro. Third, expectations of currency depreciation stemming from fiscal deficit expansions and tariff policies in Western countries like the U.S. 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, and 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 indicators have significantly normalized from extreme levels seen earlier this 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 major structural shift in the gold options market implies that the cost-effectiveness of using options to capture asymmetric upside gains has greatly improved. The overall clearing of market sentiment also lays a healthier technical foundation for a new round of gold appreciation.
International bank UBS expects gold prices could rebound to around $5,200 over the next year, with core reasons being a weaker dollar, continued central bank purchases, and market misreading of the future direction of Fed monetary policy. In other words, in the view of these financial giants, the $3,900–$4,000 region could become the "pressure bottom zone" for the second phase of the gold bull market. However, in the short term, it remains a tug-of-war between downward momentum and long-term buying driven by central bank activity, fiscal deficits, and de-dollarization. If non-farm payrolls and inflation data continue to reinforce rate hike expectations, gold prices may still complete one final leg down before launching a more substantial super-rebound.
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