Gold prices dipped to their lowest level in over a week early Friday, extending losses amid the Federal Reserve’s hawkish policy signals and investors digesting persistent geopolitical and economic uncertainties. Despite a softening US Dollar and a weaker risk tone typically favorable for safe-haven assets, XAU/USD dropped toward the $3,345 mark as cautious Fed messaging overshadowed bullish catalysts like Middle East tensions and US-China trade friction.
Hawkish Fed Keeps Gold Under Pressure
The Federal Reserve’s midweek policy decision marked a turning point for market sentiment, with the central bank holding rates steady but doubling down on its cautious outlook for inflation. The Fed’s updated dot plot revealed expectations of just two rate cuts in 2025 — one fewer than markets had anticipated — and projected only one 25 basis-point cut in both 2026 and 2027. That surprise hawkish tone is fueling a repricing of future monetary easing, diminishing gold’s appeal.
The Fed’s growing concern about “persistent inflationary pressures”, especially in the face of Trump’s renewed tariff threats, suggests a longer path to monetary loosening. Since gold yields no interest, its appeal wanes in a higher-for-longer rate environment. As a result, Friday’s decline is being viewed more as a recalibration of rate-cut expectations than a reaction to traditional macro or geopolitical shocks.
Risk Aversion Isn’t Enough to Lift Gold… Yet
Traditionally, gold gains during risk-off periods — especially when geopolitical crises escalate. But recent price action suggests that rate-driven flows are currently dominant. The ongoing aerial conflict between Israel and Iran, now entering its second week, has failed to ignite a strong gold rally. Even with mounting speculation over potential US military involvement, gold has instead slipped lower.
There are a few reasons for this unusual dynamic:
- The conflict remains largely regional, with no full-scale war declaration yet.
- Investors may be waiting for clarity on Trump’s next move in the Middle East.
- The market seems more focused on economic and monetary policy cues for now.
That said, the possibility of US military engagement, especially if diplomacy with Iran fails over the next two weeks, remains a potent catalyst for upside in gold. For now, traders appear to be hedging cautiously — unwilling to go long aggressively until the fog of Fed policy clears.
US-China Trade Tensions Back in the Spotlight
In a parallel risk story, President Donald Trump’s evolving tariff strategy is adding a fresh layer of uncertainty to global markets. Trump announced earlier this week that pharmaceutical imports may be targeted with new duties as part of his broader “liberation day” tariffs, set to take effect on July 9.
This threatens to:
- Exacerbate global supply chain stress.
- Push consumer prices higher, feeding inflation.
- Reinforce the Fed’s cautious stance.
Investors are growing increasingly concerned that Trump’s tariff threats may evolve into a trade war 2.0, with major implications for inflation and global growth. Ironically, this could be a double-edged sword for gold: inflationary pressures typically support gold, but higher rates (needed to tame inflation) diminish its attractiveness.
Gold Dips Despite Softer Dollar
Interestingly, Friday’s gold dip occurred alongside a declining US Dollar. The USD index has pulled back from its weekly high, pressured by declining Treasury yields and some profit-taking after the Fed’s hawkish surprise.
Ordinarily, a weaker dollar makes gold cheaper for foreign buyers, potentially driving demand. But the metal has failed to capitalize on this dynamic in the near term, which reinforces the notion that the Fed’s message is eclipsing other variables.
The disconnect between the USD and gold suggests that the market’s primary focus remains on monetary policy credibility — not just on short-term flows. For gold to resume a sustainable rally, either inflation must reignite haven flows or Fed rhetoric must soften. Until then, volatility is likely.
Technicals: Key Support Near $3,340; Eyes on $3,400 Recovery
From a technical standpoint, gold’s decline near $3,344 marks a retest of support last seen in early June. If this level gives way convincingly, further downside toward the $3,325–3,300 zone is possible in the near term.
However, some dip-buying activity is likely to emerge, especially with weekend geopolitical risk looming. Immediate resistance is now seen near $3,370, followed by a key psychological barrier at $3,400. A sustained break above that could revive bullish sentiment, especially if risk sentiment worsens or if next week’s US data disappoints.
Traders are also watching momentum indicators such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), which are beginning to show signs of exhaustion on the downside — another potential clue that dip-buyers may return soon.
Outlook: Mixed Fundamentals Demand Caution
The current backdrop is highly nuanced. On one hand, hawkish Fed signals and slowing rate-cut expectations are weighing on gold. On the other, geopolitical risks, trade tensions, and a weakening dollar should be supporting it.
This fundamental crosscurrent creates a tricky landscape for traders. Rather than committing to strong directional plays, many are opting for range-bound strategies or waiting for clear confirmation from data or policy moves.
Key upcoming events to watch:
- US Core PCE Inflation data (June 28) — the Fed’s preferred inflation gauge.
- Geopolitical updates from the Israel-Iran theater.
- Trade policy pronouncements ahead of July 9 tariff deadline.
A spike in any of these could be the trigger that ends the current stalemate and sets gold on a new directional path.
Conclusion: Gold Awaits Its Next Catalyst
Gold’s recent drop to a one-week low underscores the market’s current preference for central bank clarity over safe-haven positioning. While global risk factors remain elevated — from potential Middle East escalation to trade uncertainty — investors are mostly focused on the Fed’s forward guidance and its implications for real interest rates.
As long as rate cut bets are pared back and the Fed remains concerned about inflation, gold could struggle to break significantly higher. But with geopolitical headlines brewing and economic data volatility increasing, the yellow metal’s downside may be limited, at least in the short term.
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