Photo illustration of gold bars reflects recent movements in gold prices caused by inflation concerns and central bank policy outlook, December 23, 2025 in Brussels, Belgium. (Photo: Jonathan Raa/NurPhoto via Getty Images)
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Gold rose from a six-month low on Thursday as some traders covered short positions following the precious metal’s recent sharp decline. However, growing concerns that inflation is rising could force the Federal Reserve to raise interest rates this year, likely limiting any full-fledged economic recovery.
August gold futures hit $4,046.20 on Thursday, the lowest since November. Gold has fallen 6.3% this week alone, marking the second straight weekly decline and the worst week since mid-March, when gold fell 9.62%.
Fed interest rate decisions
As a safe-haven asset, investors gravitate towards the yellow metal during times of market uncertainty, with the hope that the yellow metal will act as a hedge against inflation. However, because gold does not produce anything, it is particularly sensitive to expectations of long-term real interest rates.
The Iran war, now in its fourth month, is driving up energy and other prices and accelerating inflation.
U.S. consumer inflation rose at the fastest pace in three years in May, largely due to higher prices for energy-related products. That, combined with a better-than-expected May jobs report, raised expectations that the Fed would need to raise interest rates by the end of the year to curb price increases.
When Kevin Warsh holds his first meeting as Fed chairman next week, the Fed is expected to keep its benchmark lending rate unchanged at 3.50% to 3.75%. A majority of economists polled by Reuters expect interest rates to remain unchanged this year.
Traders are less optimistic, currently pricing in a 67% chance the Fed will raise rates by December, according to CME Group’s FedWatch tool. If higher interest rates help curb inflation, dollar-denominated assets such as U.S. Treasuries could become more attractive.
“Gold is clearly significantly oversold at the moment, but it remains to be seen whether this is a recovery itself or just a short position to take profits,” independent analyst Ross Norman told Reuters.
Technical breakdown
Based on price chart analysis, the overall technical situation of gold remains weak.
Gold recently fell below its 200-day moving average for the first time since September 2023, which Citigroup noted as a significant negative signal. The bank has been cautious about gold in the near term since the war escalated in March, due in part to rising energy costs due to the closure of the Strait of Hormuz.
But in the long term, City was more bullish. “Despite the negative momentum in the short term, we expect gold prices to eventually rebound once the Strait situation eases,” the analysts said.
JPMorgan was more pessimistic, saying retail and institutional investors were pulling out of so-called “down trades” based on the belief that the dollar would continue to weaken. The bank cited outflows from gold exchange-traded funds (ETFs) and weak futures positioning as evidence of this move, which is also tied to concerns about the size of government debt, inflation and geopolitical risks.
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