Analysis:Gold’s record rally falters as bulls run into Fed rate expectations, stronger dollar
Gold jewellery sits on display at a jewellery mall in Shanghai, China January 27, 2026. REUTERS/Nicoco Chan
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LONDON, June 12 : Expectations for U.S. monetary tightening and a strong dollar have taken some wind out of the “perfect storm” powering an upswing in gold since 2023, leaving prices in vulnerable territory around $4,000 per ounce as the interest rate backdrop unfolds.
Gold’s reversal has raised questions over the longevity of its record-breaking rally even as geopolitical risk, fiscal deficits and central bank buying continue to support the longer-term case for bullion.
After hitting a record $5,595 in January, spot gold has fallen 25 per cent, as the Iran war spurred an oil-price rally and boosted bets on rate hikes. That has curbed bullion’s safe-haven appeal — consistent with past extreme shocks — and drove prices to a six-month low on Thursday.
“In the very short term, the market has to digest the risk of a Fed hike and a stronger dollar,” said Aakash Doshi, head of gold and metals strategy at State Street Investment Management.
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Doshi sees scope for gold to bounce if the Middle East conflict eases and oil falls to $80 a barrel. Longer term, gold could revert to being a safe haven as fiscal deficits balloon and if the fallout from the Iran conflict leads to fragmented geopolitics.
KEY TECHNICAL BREAK
Gold was at $4,188 per troy ounce on Friday, having touched its lowest level since November at $4,022 on Thursday.
Strong U.S. jobs data last week lifted rate-hike bets and sent gold below its 200-day moving average for the first time in 2-1/2 years.
That closely watched key technical level — now acting as resistance at $4,446 — suggests that the dynamic of the market has changed, one precious metals trader said. Gold surged 64 per cent in 2025, the most in 46 years.
The metal’s record run higher in recent years was driven by strong central bank buying and safe-haven demand as investors sought to mitigate risks tied to U.S. President Donald Trump’s trade tariffs, Federal Reserve independence and Russia’s war in Ukraine.
“While analysts were fixated on Trump’s new world disorder, it now seems that last year’s huge gains were driven in good part by rate-cut expectations,” said Adrian Ash, head of research at online marketplace BullionVault.
Managed short positions on COMEX gold were at the lowest since January 2025 in the week to June 2, leaving plenty of scope for bearish bets to build up, according to Ash.
Standard Chartered analyst Suki Cooper estimates that at least 270 tons of gold in exchange-traded funds are in loss-making territory at prices below $4,250.
At $4,000, that number will rise to 298 tons. Outflows from gold-backed ETFs totalled 16 tons in May and 7 tons in the first week of June.
While investors are sidelined, physical demand is seasonally sluggish with bullion trading at a deep discount in India.
Nicky Shiels, head of metals strategy at MKS PAMP, expects gold prices to be rangebound over the next few months “before more strategic tailwinds and catalysts emerge”.
Source: Reuters
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