Gold closes the week at $4,127.60 an ounce despite the escalation in the Middle East. The Fed, led by Kevin Warsh, anticipates rate hikes that increase the opportunity cost of the metal.
The gold has ignored its traditional role as a safe haven in a context of maximum geopolitical tension. Drone attacks on merchant ships in the Persian Gulf and US reprisals against Iranian positions have failed to sustain the price of the bullion, which has closed the week at $4,127.60 an ounce, down 1.43%.
The reason for the drop lies with the Federal Reserve. Under the presidency of Kevin Warsh, the US central bank has radically shifted its monetary policy, prioritising inflation control over any geopolitical risk.
The dot plot published after the meeting on June 17 — Warsh's first, with a unanimous vote of 12 to 0 — reveals a 180-degree change: nine of the 18 members of the FOMC expect rates to end 2026 above the current level, and six of them foresee two hikes. The median rate projected for the end of the year is 3.8%, implying a 25 basis point increase.
Inflation remains stubborn and the Fed tightens
The shift responds to inflation that shows no signs of easing. The Fed has raised its PCE inflation forecast for 2026 from 2.7% to 3.6%, while the May CPI stood at 4.2%. Futures markets are already pricing in a nearly 60% probability of a 25 basis point hike at the September meeting, and for October that probability approaches 61%.
This tightening penalises gold as an asset that does not generate returns. The opportunity costs of holding bullion versus interest-bearing instruments soar. As a result, institutional investors have massively reduced their exposure: globally physically-backed ETFs recorded net outflows of $8.9 billion in June, equivalent to 74 tonnes. North America accounted for $5.5 billion, raising first-half outflows to $7.7 billion — the worst start since 2013.
Central banks and Asia buy on the other side of the market
However, the physical market shows a very different face. Central banks are taking advantage of prices below $4,200 to increase their reserves. Poland added 82 tonnes in the first half, 19 of them just in June. China has recorded 20 consecutive months of purchases. Asia, for its part, has set records for capital inflows into gold ETFs: $12 billion in the first half.
Globally, the net balance for the half-year remains positive at $8 billion, highlighting the divide between Western and Eastern investors. While Western funds flee gold due to rising rates, central banks and Asian investors are accumulating it.
Technically, the precious metal is trying to stabilise. After hitting a low on June 30 at $3,942, it recorded a higher low last Friday at $4,021, suggesting increasing demand between $3,940 and $4,040. However, the bullion is trading 5.45% below its 50-day average ($4,365.48) and 9.07% below its 200-day average ($4,539.11). The RSI, at 44, remains in neutral territory but tilted downwards.
A close above $4,130 would be necessary to break the bearish bias and head towards $4,200. If upcoming inflation data confirms upward pressures, immediate support at $4,102 could be tested.
Next week marks the immediate future
The coming days will be crucial for gold. On Tuesday, the June consumer prices will be published in the US, and on Wednesday, the producer prices. Both will serve as a barometer for the next Fed meeting on July 28 and 29, although there will be no new economic projections at that meeting. If the CPI remains above 4%, the market will further tighten its rate expectations, and gold will remain under pressure.
For the investor, the lesson is clear: gold has ceased to be an automatic refuge in times of war. The Fed's monetary policy weighs more than any geopolitical conflict. Those looking to protect themselves from inflation with gold will need to closely monitor macro data and Fed signals, and be patient in the face of a possible technical correction.
You may also like
