Traders price in 37 bps of tightening after the Fed adopts a hawkish stance, capping gold’s upside on higher real yields.
Gold extended losses after the Federal Reserve’s dot plot projected a rate hike in 2024, reinforcing a short-term tightening bias. The initial sell-off deepened as Fed Chair Warsh avoided forward guidance, pushing traders to bet on higher real yields.
Markets had anticipated a more dovish tone, but the Fed’s shift toward data dependency—with Warsh emphasizing financial markets as a key input—solidified expectations for further tightening. A 30% chance of a July hike and 65% for September is now priced in, reflecting 37 bps of total tightening.
The absence of pushback from former President Trump, who typically opposed rate hikes under Powell, added to the hawkish sentiment. Gold’s decline underscores investor focus on the Fed’s inflation mandate and incoming economic data.