Gold prices fell below $4,000 per troy ounce on Tuesday, pressured by rising market expectations for interest rate hikes and a cooling of enthusiasm for gold investment among retail investors, putting the metal on track for its worst quarterly performance in more than ten years.
Spot gold prices dipped to below $3,943 early in the session, hitting their lowest level since last November, before recovering slightly. Over the past three months, gold has declined by nearly 14%.
In January, driven by a wave of retail speculation, gold prices had soared to a record high near $5,595. However, prices have since tumbled as new Federal Reserve Chairman Kevin Warsh has signaled a hawkish stance, leading markets to widely anticipate rate hikes this year.
Tom Price, an analyst at Panmure Liberum, stated: "The core factor weighing on gold is the market's realization that the new Fed chairman is highly focused on inflation and will use interest rate hikes to combat it, which has pressured gold lower."
Gold itself does not generate interest income, making it less attractive in an environment of rising borrowing costs, while interest-bearing assets like government bonds become relatively more appealing to investors.
After nearly two years of almost uninterrupted gains, gold's performance this year has been volatile. The Middle East conflict has pushed up oil prices, leading to expectations of inflation and higher interest rates, which pressured gold and prompted many investors to quickly unwind leveraged positions. Analysts noted that some traders also sold gold to pivot into bets on suring artificial intelligence-related stocks, chip companies, or to participate in what is expected to be the largest initial public offering ever for SpaceX.
In recent weeks, persistent outflows from gold exchange-traded funds, coupled with new regulations from several Chinese banks restricting retail precious metals trading, have further weighed on prices. Industry data from the World Gold Council suggests gold ETFs could see net outflows for a second consecutive month in June.
Nicky Shields, an analyst at MKS Pamp, said: "The decline in gold is not due to a single factor. Market focus has shifted to AI and SpaceX-related plays, while various inflation indicators are no longer supportive for gold."
She pointed out that dollar-denominated gold is being pressured by a combination of a stronger U.S. dollar, ETF outflows, uncertainty around Federal Reserve policy, and fading enthusiasm for the "debasement trade." This trade refers to investors selling fiat currencies to allocate into assets like gold and Bitcoin.
Nitesh Shah, head of commodities at WisdomTree, stated: "Any policy that dampens gold buying demand is negative for prices." However, he added that sustained central bank purchasing demand for gold could help form a floor for the price.
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