On Wednesday, the spot price of gold plummeted to its lowest level in over seven months, breaching the critical $4,000 per ounce threshold. This sharp decline was primarily driven by a strengthening US dollar, fueled by rising expectations of an interest rate hike from the Federal Reserve, which weighed on the dollar-denominated precious metal.
The spot gold price closed down a dramatic $111.06, or 2.7%, at $3,998.96 per ounce, having touched its lowest point since November of last year during the session.
Analyst Christian Borjon Valencia from FXStreet noted that during the North American session on Wednesday, gold prices tumbled over 3% at one point, propelled by broad-based dollar strength. This occurred despite a significant drop in US Treasury yields, influenced by expectations that the reopening of the Strait of Hormuz could ease inflationary pressures. The price of gold broke below the $4,000 per ounce mark for the first time since November 2025.
Dollar Hits 13-Month High
The US Dollar Index (DXY), which measures the greenback against a basket of six major currencies, climbed to 101.80, reaching a 13-month peak. A stronger dollar makes gold, priced in dollars, more expensive for holders of other currencies.
West Texas Intermediate (WTI) crude oil prices fell 3.40% to $70.55 per barrel on Wednesday, following reports from US Vice President JD Vance and Iran's UN ambassador indicating progress in US-Iran talks. However, traders were advised to monitor conflicting statements from both sides regarding the inspection of Tehran's nuclear facilities.
Influenced by the oil price drop linked to the Strait of Hormuz reopening, the yield on the 10-year US Treasury note fell nearly 9 basis points to 4.410%.
Hawkish signals from the Federal Reserve at its policy meeting last week, coupled with market concerns that a war involving Iran could stoke inflation, are prompting traders to increase bets on a Fed rate hike this year. This dynamic is reducing the appeal of gold trading.
Independent metals trader Tai Wong stated that precious metals faced significant selling pressure during Wednesday's session due to the Fed's hawkish stance, the dollar's rise to a 13-month high, and receding inflation expectations. Wong believes gold still has support below $3,900 per ounce, bolstered by ongoing central bank purchases, making a collapse difficult. However, he suggested the metal could enter a prolonged period of consolidation.
Fed Rate Hike Expectations Weigh on Gold
Despite the drop in oil prices, traders continue to anticipate a hawkish Fed, reflecting internal divisions at the central bank. Among 19 policymakers, eight forecast a rate hike before the end of 2026, while the majority lean toward keeping rates steady.
Data from Prime Terminal shows the market expects the Fed to hold rates steady at its next meeting, but this expectation is narrow, with a 60% probability of no change versus a 40% chance of a hike. For December, the probability of a hike reaches 82%, with traders already pricing in 20 basis points of tightening.
Gold, which yields no interest, becomes less attractive when interest rates rise.
The spot gold price, which hit a record high of $5,594.82 per ounce in late January, has now fallen more than $1,600 from that peak.
Analysts at ING have revised their gold price forecasts downward, now projecting an average of $4,300 per ounce for the third quarter of 2026 and $4,600 for the fourth quarter. These figures are significantly lower than their previous estimates of $4,850 and $5,000, respectively.
Investors are now awaiting the release of the US core Personal Consumption Expenditures (PCE) price index on Thursday, the Federal Reserve's preferred inflation gauge.
Lukman Otunuga, Senior Research Analyst at FXTM, indicated that gold remains vulnerable to further downside risks if the Fed signals more hawkishness or if economic data supports the case for higher rates.
Technical Analysis for Gold
FXStreet's Christian Borjon Valencia pointed out that gold's downtrend accelerated after it broke below the 200-day Simple Moving Average (SMA) at $4,473 per ounce, driving the price toward the $4,000 level. Bearish momentum has increased since the price retested the $4,400 area; the failure of buyers to hold that level triggered the sell-off. The Relative Strength Index (RSI) has just entered oversold territory but has not yet hit the extreme low of 20. Given the strengthening bearish momentum, further declines are anticipated.
Valencia stated that if the price breaks below $3,950 per ounce, the next support level would be at $3,900, followed by the swing high from October 28, 2025, at $3,886. A breach of that level could see support tested at the former intraday high from April 22, 2025, now acting as support, around $3,500 per ounce.
Conversely, Valencia added that for gold bulls to regain momentum, they must first reclaim the $4,000 level and then break above the intraday low from March 23 at $4,098 per ounce to potentially drive prices higher.
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