On Tuesday, the price of spot gold experienced a dramatic reversal, plunging sharply after approaching the $4,200 per ounce level and briefly falling below the $4,100 per ounce threshold during the session. Rising expectations for Federal Reserve interest rate hikes propelled the US dollar to a one-year high, overshadowing supportive factors stemming from progress in US-Iran talks.
The spot gold price closed Tuesday's trading with a steep decline of $81.42, or 1.94%, settling at $4,110.02 per ounce.
FXStreet analyst Christian Borjon Valencia noted that gold prices tumbled on Tuesday, erasing Monday's gains, primarily due to a strengthening US dollar driven by hawkish Federal Reserve policy and risk-off sentiment. During the session, gold reached a high of $4,198 per ounce.
The US Dollar Index, which tracks the greenback against a basket of six major currencies, rose 0.40% to 101.39 on Tuesday, marking a new high for the year.
Bob Haberkorn, a senior market strategist at StoneX, commented, "Currently, the gold and silver markets are not really focused on the Middle East situation. I think they are more focused on what the Fed said last week."
Fed Rate Hike Expectations Weigh on Gold
Following hawkish signals from the Federal Reserve's new Chair, Kevin Warsh, aimed at curbing inflation, investors are increasing bets on imminent rate hikes.
The CME Group's FedWatch Tool indicates that traders now estimate an approximately 86% probability of a rate hike by December, significantly higher than the 61% probability prior to the Fed's meeting last week.
While gold is often viewed as a hedge against inflation, it tends to face pressure in high-interest-rate environments as it does not yield interest.
Valencia stated that the Fed's persistently hawkish stance continues to weigh on gold, with nearly half of Fed members supporting tighter policy. Money markets are currently pricing in at least 34 basis points of tightening by the end of 2026, a stark contrast to expectations for nearly 60 basis points of easing in mid-January.
Consequently, market expectations for interest rates to remain higher for longer are supporting US Treasury yields. The yield on the interest-rate-sensitive 2-year Treasury note stands at 4.19%, which is 71 basis points higher than the 3.475% seen at the beginning of 2026.
US economic data also showed strength, with the S&P Global Manufacturing Purchasing Managers' Index for June rising to 55.7, up from 55.1 in May and exceeding the prior estimate of 54.8. The report indicated improved manufacturing activity as businesses placed orders early to avoid shortages and price increases stemming from energy shocks related to the US-Iran conflict.
Progress in US-Iran Talks
US Vice President JD Vance stated that talks with Iranian officials held in Switzerland laid a good foundation for a final peace agreement, and previously obstructed oil tanker traffic through the Strait of Hormuz has begun to resume.
Simultaneously, according to Iran's Permanent Representative to the UN, the US-Iran talks have made progress. Additionally, Washington announced the lifting of sanctions on Iran for a 60-day period starting Monday, despite ongoing hostilities in Lebanon.
On Tuesday, WTI crude oil prices fell 1.34% to $73.08 per barrel, bringing the week-to-date decline to over 3%.
Focus Turns to US PCE Data
Investors are now awaiting the release of the US Core Personal Consumption Expenditures price index on Thursday, hoping to glean further clues on monetary policy from this inflation gauge favored by the Federal Reserve.
Other key US economic data to watch this week includes Gross Domestic Product figures and initial jobless claims, also due on Thursday.
Technical Analysis for Gold
FXStreet analyst Christian Borjon Valencia pointed out that the technical picture for gold shows sellers remain in control after the price broke below the 200-day Simple Moving Average at $4,446 per ounce. This level is a crucial price point that buyers must reclaim to stage a recovery.
It is noteworthy that the downtrend remains intact, with gold forming lower highs and lower lows for four consecutive trading sessions. Bears are closely watching for a clear break below the $4,100 per ounce level, which would open the door for a test of the June 11 low of $4,023 per ounce. A breach of that level could see gold target the $4,000 per ounce mark.
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