Gold extended its recovery after comments from Federal Reserve Chairman Kevin Warsh tempered market speculation about potential interest rate hikes this year to combat inflation. On Thursday, spot gold rose as much as 0.9%, and was up 0.5% at $4,050.90 per ounce at the time of writing. This followed a 0.6% gain in the previous session, ending a two-day losing streak.
Warsh's remarks at the European Central Bank Forum in Portugal on Wednesday were less hawkish than some market participants had feared, alleviating concerns about the Fed's next policy moves. While markets are highly focused on whether the Fed will hike rates at its next meeting, Warsh did not provide clear policy signals. However, he repeatedly stated that the Fed would not accept an inflation target above 2%. Notably, Warsh revealed that U.S. inflation expectations have moderated over the past four weeks, and inflation risks have decreased compared to earlier, but the Fed will not easily change its policy direction based on short-term data fluctuations.
Gold's trajectory has closely followed interest rate path expectations. Pepperstone Group analyst Ahmed Assiry stated that this market sentiment is "broadly positive" for gold. However, he noted that the U.S. dollar remains at relatively high levels, and U.S. Treasury yields have recovered most of their earlier losses, indicating that "the market is still unable to accurately gauge his policy stance due to Warsh's refusal to provide forward guidance."
Recent data shows a mixed picture for the U.S. economy. Manufacturing activity expanded for a sixth consecutive month in June, albeit at a slower pace. Meanwhile, private sector job growth remained robust, marking the strongest three-month hiring streak in over a year. The upcoming non-farm payrolls data on Thursday will provide further clues.
Wall Street Gold Bulls Trim Forecasts
As investors grow more cautious about the U.S. monetary policy outlook and gold investment demand remains weak, international investment banks have recently initiated a new wave of downgrades to gold price forecasts.
Deutsche Bank analyst Michael Hsueh, in a published report, lowered the third-quarter gold price forecast by more than one-fifth to $4,300 per ounce from the previous level, and cut the fourth-quarter target price by 17% to $4,800. Although the revised targets are still above current price levels, the bullish momentum has "significantly weakened." Michael Hsueh explicitly stated in the report that the two core factors driving gold lower are: the repricing of the Fed's policy path and the resilience shown by U.S. macroeconomic data.
More concerning is the quantitative assessment of downside risks. Michael Hsueh further warned that if the Fed raises interest rates three to four times, gold prices could fall to around $3,800 per ounce—implying a potential drop of up to 32% from the late-January record high of $5,600.
Prior to Deutsche Bank, Goldman Sachs, one of Wall Street's most steadfast and vocal gold bulls, had already pivoted. Goldman Sachs slashed its year-end 2026 gold target price to $4,900 per ounce from $5,400, a reduction of $500. Goldman Sachs analysts Lina Thomas and Daan Struyven clearly outlined two main reasons for the downgrade.
First, expectations for rate cuts have completely evaporated. Goldman Sachs economists have postponed the Fed's final two rate cuts to June and December 2027, meaning no cuts are expected in 2026. The previously widely anticipated path of "rate cuts within the year" has been completely overturned.
Second, Warsh's "hawkish debut" changed the market narrative. The first FOMC meeting chaired by the new Fed Chairman, Kevin Warsh, delivered "more hawkish-than-expected" signals, significantly alleviating market concerns about central bank independence and making it difficult for demand for gold as a macro policy hedge to recover as expected.
While Goldman Sachs maintains a constructive long-term view on gold, it explicitly characterized its near-term strategy as "tactically cautious" and warned that if the Fed implements two rate hikes this autumn, year-end gold prices could fall further to $4,440.
However, not all institutions are uniformly bearish. Citigroup's shift in stance has been the most dramatic. On June 12, it lowered its 3-month gold target to $4,000, but just four days later, it quickly reversed course, raising it to $4,500, arguing that the previous decline represented a "price reset" rather than the end of the bull market, and maintained its bullish 6-12 month forecast of $5,000.
Bank of America, while acknowledging that the $6,000 target is difficult to reach in the short term, still believes that high U.S. fiscal deficits and a lack of fiscal consolidation will support gold's long-term upward trend. JPMorgan maintains its forecast of $6,000 by the end of 2026 and an average price of $6,263 for 2027.
Outlook for Gold in the Second Half of the Year
In late January, gold prices repeatedly set new record highs, reaching a peak of $5,405 per ounce, before falling sharply to a low of $4,002 in June. This volatility has resulted in a 7% year-to-date decline for gold, with average volatility rising to 30%.
On July 1, the World Gold Council's "Global Gold Market Mid-Year Outlook 2026" report indicated that after the volatility seen since the start of the year, gold is approaching a critical juncture in the second half, with its performance influenced by multiple uncertainties including geopolitics, the interest rate environment, and investor sentiment.
The World Gold Council's short-term gold performance attribution model shows that the dominant factor driving gold in the first half was heightened geopolitical risk, with U.S.-Iran tensions being particularly significant. Additionally, momentum factors such as investor positioning adjustments and profit-taking also played important roles. As the market reassessed interest rate and dollar expectations, the impact of opportunity costs on gold performance presented a mixed and complex picture.
Looking ahead to the second half, the World Gold Council's gold valuation framework suggests gold will continue to act as a barometer of the global macroeconomy. Unlike assets primarily driven by domestic factors, gold reflects the demand of global consumers, investors, and institutions.
Specifically, the World Gold Council believes three scenarios are possible in the second half:
Current gold prices are largely in line with market consensus. The market expects the Fed to hike rates at least once in 2026, likely in October; the Bank of England, Bank of Japan, and European Central Bank are all expected to tighten policy; U.S. Q2 inflation is projected to peak near 3.9%. If there are no major changes to this environment, gold prices may trade around $4,100 per ounce for the year, with a fluctuation range of approximately ±5%. If geopolitical or economic conditions deteriorate, or interest rate expectations shift, gold could regain upward momentum. However, only sufficiently strong signals of a global economic slowdown could push gold prices to break higher. A stronger U.S. dollar, more aggressive-than-expected rate hikes, and a recovery in market risk appetite are the main headwinds for gold.
If gold prices persistently fall below $4,000 per ounce, it could trigger further selling. However, based on historical performance, a drop of more than 10% from current levels could trigger "buy-the-dip" demand from long-term investors in multiple regions.
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