Many readers are probably following the matches of the football World Cup right now. It's remarkable how sharp some of the players dismissed before the tournament as "old hands" have looked recently – I'm thinking primarily of Messi and Ronaldo here. Nonetheless, this is likely to be their last World Cup, much as Fed Chair Jerome Powell chaired his final meeting as Fed Chair back in May. Last week, his successor Kevin Warsh was seen for the first time in his new role as Fed Chair. And the outcome of the US central bank's meeting packed quite a punch. To stay within the football metaphor: the Fed delivered a hard tackle to gold prices.
Fed surprises markets with rate hike signals
What caught market observers completely off guard was that – after Kevin Warsh himself declined to give a forecast – nine of the remaining 18 members of the Federal Open Market Committee indicated they expect at least one key rate hike by the Fed before year-end. Kevin Warsh also stressed at his press conference that the Fed would do whatever is necessary to ensure price stability. He noted that the labor market remains robust, the economy is growing well, and sentiment indicators point to continued strong momentum in both manufacturing and services. He mentioned no reasons, however, that might have spoken in favor of falling interest rates.
Yields and the US dollar surge
Hardly any market participant had expected such clear signals of a potentially noticeably more restrictive Fed policy stance over the medium term – after all, many had rather anticipated a continuation of the Fed's rate-cutting cycle. The market reaction was correspondingly fierce: immediately after the Fed meeting, two key rate hikes were priced into futures markets for the coming months. US Treasury yields jumped sharply, particularly at the short end of the curve. This also gave the US dollar a strong tailwind; yesterday it appreciated against the euro to its highest level since early June 2025.
Gold price drops below the 4,000 US$ mark
Rising rate hike expectations and yields, a stronger US dollar – it played out almost exactly as the textbooks would suggest: this combination had all the makings of a tackle that swept gold prices off their feet (though no foul was involved here, so we can leave the "red card" in the referee's pocket). Having been pleased to report rising prices just last Tuesday, it's now time to brace for some tougher news...
Gold prices were still trading at around 4,340 US$ per ounce last Tuesday afternoon, and even reached 4,382 US$ per ounce shortly before the Fed's statement was released. After Kevin Warsh's press conference, prices dropped sharply to 4,220 US$ per ounce. The yellow metal ended the week at around 4,150 US$ per ounce. After a fairly quiet Monday, the US dollar gained strongly on Tuesday, giving gold prices a further push downward. In a kind of "sell-off," prices then plunged within a short period yesterday from 4,100 to 3,960 US$ per ounce, the lowest level since November. It's also disappointing that demand in Asia currently appears to be weak. As these lines are being written on Thursday morning, gold is trading at around 3,975 US$ per ounce.
Xetra-Gold price also falls sharply
The Xetra-Gold price was somewhat supported by the declining EUR/USD exchange rate, but still fell noticeably as well. During regular trading hours, it rose from 120.20 € per gram last Tuesday afternoon to 121.00 € per gram the following day, ahead of the Fed meeting. By the end of the week, it stood at 116.40 € per gram on the board. At its weekly low so far, it dropped to 112.50 € per gram yesterday afternoon. This Thursday morning, the Xetra-Gold price is likely to start trading only slightly firmer, at around 112.60 € per gram.
Speculative positions being unwound
It's possible that breaking through the psychologically important 4,000 US$ per ounce mark first triggered a wave of sell orders, which amplified yesterday's rapid downward move. Positioning among speculative market participants has eased noticeably of late. Last week, I had already mentioned an uneasy feeling that gold prices weren't reacting more positively to falling oil prices. That feeling has now intensified somewhat. For the moment, however, it appears that mainly speculative positions are being unwound. Perhaps physical buyers will return to the market more strongly at these lower prices before too long. That said, this could still take a while – midsummer tends to be a seasonally quiet period for demand. We'll see, and let's hope for somewhat cooler temperatures next week.
I wish all our readers a wonderful weekend – and, for those lucky enough, a great start to the summer holidays, along with a well-stocked fridge for the warm days ahead.