Gold Drops 2.4% Weekly as Fed Rate Cut Hopes Fade

On 20 June, the price of spot gold decreased by 0.6% to $3,350.66 per ounce, marking a 2.4% decline for the week. U.S. gold futures also saw a decrease of 1.2%, settling at $3,366.30. This downturn in gold prices comes as expectations for U.S. rate cuts have shifted, leading to the worst weekly performance for gold in the past month. Initially, there was optimism surrounding potential rate cuts, but recent comments from the Federal Reserve have tempered this enthusiasm, resulting in a significant drop in gold prices.

This price decline reflects a broader trend in gold's performance this week. The strengthening of the U.S. dollar, coupled with growing concerns about the path of U.S. rate hikes, has negatively impacted the precious metal. The dollar has increased by 0.5% this week, on track to record its largest weekly gain in over four weeks. These factors have contributed to a temporary pause in the gold rally.

Another significant factor influencing gold's performance this week is the easing of geopolitical tensions, particularly the ongoing conflict between Israel and Iran. The U.S. President is expected to decide on U.S. involvement in the conflict within the next two weeks. The relatively calmer market expectations have alleviated some of the uncertainty surrounding gold as a safe-haven asset, leading to a reduction in its price as traders take profits following steady demand.

Nitesh Shah, a commodities strategist, noted that the two-week deadline for the U.S. President's decision on involvement in the conflict provides an opportunity for the situation to cool down. This has reduced market uncertainty, which has traditionally driven gold prices higher as a safe-haven investment. As a result, some traders have decided to take profits, contributing to the decline in gold prices.

The monetary policy of the Federal Reserve is another crucial factor affecting gold prices. On 20 June, the Fed maintained the interest rate within the range of 4.25%-4.50%, but significantly altered its outlook on future rate cuts. Initially, there was hope for deeper reductions, which would have been beneficial for gold as it performs better in a low-interest-rate environment. However, the Fed's cautious approach to rate cuts suggests that rates may not fall as rapidly as previously anticipated, potentially leading to a decline in gold prices.

This change in outlook followed the Fed's meeting on the Federal Open Market Committee (FOMC) held on Wednesday. The Fed provided an updated assessment of the economic outlook, indicating that the future path would be more challenging than previously expected. Ole Hansen, a commodity strategy expert, suggested that gold is likely to remain in its current stability period, with support levels potentially dropping to around 3,320 and 3,245.

Other precious metals have also experienced mixed performance. Silver decreased by 1% to $36.01 per ounce, while palladium saw a marginal rise of 0.1% to $1,051.53 per ounce. Platinum, after reaching its highest level since January 2008, dropped by 1.4% to $1,289.52 due to profit-taking following its upward trend. The fluctuating performance of these metals reflects the prevailing market uncertainty, with traders awaiting further cues from the Fed and developments on the geopolitical front.