Gold Prices Decline on Hawkish Fed Outlook and Dollar Strength
On Thursday, spot gold slipped 1.1% to close at $4,209.15 per ounce, while front‑month gold futures fell 3.5% to $4,227.75 per ounce. The decline was driven primarily by a stronger U.S. dollar following a markedly hawkish signal from the Federal Reserve.
The Federal Open Market Committee (FOMC) voted unanimously to keep the federal funds target range unchanged at 3.50%‑3.75%, matching market expectations. However, the post‑meeting statement was notably shorter, dropping forward guidance and ending with a simple commitment to “deliver price stability.”
In the updated Summary of Economic Projections, the dot‑plot now projects the federal funds rate at 3.8% by the end of 2026, an increase from the 3.4% forecast in the March projection. The outlook turned more restrictive, with 9 of the 18 participants indicating a rate hike this year, shifting the consensus from at least two 25‑basis‑point cuts to a single 25‑basis‑point hike.
New Fed Chair Kevin Warsh announced the formation of task forces to review five key areas: (1) Fed communications, including future press conferences and dot‑plots; (2) the central bank’s balance‑sheet strategy; (3) reliance on existing data sources; (4) productivity and employment in the era of artificial intelligence; and (5) the inflation framework, which will retain the 2% target without revision.
Separately, a diplomatic development provided a modest counterbalance to market nerves. President Donald Trump and Iranian President Masoud Pezeshkian signed an interim memorandum of understanding (MoU) at France’s Versailles palace, witnessed by French President Emmanuel Macron. The MoU ends military operations on all fronts, including Lebanon, initiates a 60‑day negotiation window, and reaffirms Iran’s commitment not to procure or develop nuclear weapons, with enriched material to be disposed of through a mutually agreed mechanism. Crucially, the agreement will reopen the Strait of Hormuz for navigation without any tolls or charges for 60 days.
The combined effect of a hawkish Fed stance and a stronger dollar outweighed the brief optimism from the U.S.–Iran peace accord, resulting in the observed drop in gold prices.