Gold price (XAU/USD) tumbles to around $3,995 during the early Asian session on Thursday. The precious metal extends the decline to below the $4,000 psychological level for the first time since November 2025 on the prospect of higher interest rates and a stronger US Dollar (USD). All eyes will be on the US May Personal Consumption Expenditures (PCE) data, which will be published on Thursday.
Traders have ramped up bets on US interest rate hikes this year after the US Federal Reserve (Fed) delivered hawkish messages at its June policy meeting and as fears of inflationary pressures stemming from the Iran war persist. It’s worth noting that Gold is often used as a hedge against inflation but does not yield interest, making it less attractive when interest rates are high.
Markets are now pricing in a 34.2% chance of a 25-basis-point hike at the July meeting, up from 8.5% a week ago, and 66.4% for September, up from 29.1%, according to the CME FedWatch tool.
“Gold is clearly trading in sympathy with market expectation on rate rising in the US,” as a focus on inflation by Federal Reserve Chair Kevin Warsh strengthened expectations of a more hawkish central bank, said Darwei Kung, head of commodities at DWS Group.
Traders brace for the US May PCE data, the Fed’s preferred inflation measure, later on Thursday for more clues about the monetary policy outlook. Any signs of easing inflation in the US could weigh on the Greenback and provide some support to the USD-denominated commodity price.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
