Gold’s Betrayal? Fears of a Rate Hike This Year Send Prices Tumbling, Erasing 13 Years of Gains

[Financial News] Global gold prices are under pressure, falling by the largest quarterly margin in about 13 years.
According to major foreign media outlets including Financial Times (FT) and The Wall Street Journal (WSJ) on the 1st, gold prices fell by about 13.4% to 14% over the past three months. That marked the steepest quarterly decline since the second quarter of 2013.
Gold prices hit a record high of $5,595 per ounce in January, supported by buying from retail investors, but then reversed sharply. On the 30th local time, spot prices briefly fell to $3,942.99 per ounce, the lowest level since November last year. Silver futures also dropped 20.4% in the second quarter, posting their biggest quarterly decline since January 2020.
The main drivers of the plunge in gold prices are inflation concerns stemming from conflicts in the Middle East and Iran, along with expectations of monetary tightening by the Federal Reserve System.
Tom Price, an analyst at Panmure Liberum, said the key downside factor was that the market had already priced in the possibility of rate hikes as Kevin Warsh, chair of the Federal Reserve, made price stability his top priority. The CME FedWatch Tool showed that the market expects three benchmark rate hikes this year and is pricing in more than a 60% chance of a hike in September.
Edward Meyer, an analyst at brokerage Marex, also said U.S. inflation remains above the Federal Reserve System's 2% target, leaving the market to consider the possibility of rate hikes. Because gold is a representative non-interest-bearing asset, higher real interest rates improve the returns on interest-paying assets such as government bonds, reducing gold's relative appeal.
Large shifts in investment flows and a series of negative factors are also weighing on gold prices. Nikki Shiels, an analyst at precious metals firm MKS PAMP, noted that investors are moving toward growth assets such as artificial intelligence chips and a SpaceX initial public offering. A strong dollar, two straight months of outflows from gold exchange-traded funds through June as projected by the World Gold Council, and restrictions by some Chinese banks on retail investors' precious metals futures trading have also added strong downward pressure on prices.
Still, some analysts say steady gold buying by central banks around the world could limit further declines. Nitesh Shah, head of research at WisdomTree, said central banks are increasing their gold holdings to prepare for geopolitical uncertainty, and that demand could help support a floor under gold prices going forward.
moon@fnnews.com Moon Young-jin Reporter