Traders price in a 70% chance of a Fed rate increase in September, pressuring non-yielding assets like gold amid hawkish policy signals.
Gold (XAU/USD) fell to a one-week low of $4,121 before recovering slightly to $4,157, extending its third consecutive weekly decline. The drop reflects growing expectations of tighter monetary policy after the Federal Reserve signaled potential rate hikes by year-end, with markets now pricing a 70% chance of a September increase.
The Fed’s hawkish stance follows a surge in annual inflation to 4.2% in May, well above its 2% target. Nearly half of FOMC members indicated at least one rate hike by December, reinforcing bets on higher-for-longer interest rates. Gold, a non-yielding asset, typically underperforms in such environments as investors shift to yield-bearing alternatives like bonds.
Weak physical demand further pressured prices, with India’s gold imports plunging nearly 70% amid elevated local premiums. The metal remains nearly 25% below its all-time high as geopolitical risks ease and monetary policy expectations dominate trading sentiment.