Gold Fundamental Analysis: Gold Falls for Nine Consecutive Sessions Under Interest Rate Pressure, While the Long-Term Outlook Remains Cautious

In the latest session, gold prices dropped sharply from around USD 4,500 to nearly USD 4,100 early in the day, mainly driven by a stronger U.S. dollar and rising Treasury yields, as investors continued to reprice the expected interest rate path for 2026. At the same time, prolonged geopolitical tensions in the Middle East have raised inflation risks through an oil price shock, reinforcing the Federal Reserve’s “higher for longer” stance. Additional pressure came from fund flows, with gold ETFs seeing significant outflows of approximately USD 7.9 billion, signaling active profit-taking and position reduction.

However, gold rebounded notably toward the end of the session, closing near USD 4,400 after reports that the U.S. temporarily delayed plans to strike Iran. This helped ease geopolitical tensions and led to a pullback in both oil prices and the U.S. dollar. These developments suggest that the gold market is no longer reacting directly to geopolitical risks, but rather through indirect transmission channels such as inflation, monetary policy, and currency movements.

In the short term, geopolitical tensions remain a key source of uncertainty. If the conflict escalates further, oil prices could surge again, increasing inflationary pressures and reinforcing expectations of prolonged high interest rates, factors that would continue to weigh on gold. Conversely, if tensions ease, inflation pressures may subside, allowing gold to stabilize and recover.

Nevertheless, interest rates remain the central variable shaping market dynamics. After cutting rates by a total of 175 basis points since September 2024, the Fed is currently holding its policy rate in the 3.50%–3.75% range, reflecting a cautious stance amid persistent inflation risks. Notably, consumer inflation expectations remain elevated, with the University of Michigan survey showing 3.4% (1-year) and 3.2% (5-year), indicating that price pressures are not yet fully contained.

However, the likelihood of further rate hikes is increasingly uncertain, as inflation has shifted toward a cost-push dynamic following the oil shock linked to Middle East tensions. Production costs remain elevated, with Core PPI at around 3.9% YoY, significantly above consumer inflation levels. Meanwhile, wage growth of approximately 3.7% continues to outpace productivity gains, indicating that cost pressures are being directly passed into prices.

In this context, further rate hikes may have limited effectiveness in controlling inflation, as many of the underlying cost drivers lie beyond the direct influence of monetary policy. On the contrary, higher rates increase financing costs, particularly for highly leveraged firms, leading businesses to pass these costs onto consumers rather than absorb them. This dynamic contributes to more persistent inflation, even under a tight monetary policy environment.

As a result, the Fed is likely to maintain a higher rate environment for longer, but with limited room for additional tightening. For gold, this creates a clear two-sided structure. In the short term, the “higher for longer” narrative continues to support the U.S. dollar and yields, sustaining downward pressure on gold, as reflected in the recent nine-session decline. However, over the medium to long term, with limited scope for further rate hikes and structurally persistent inflation, real yields are unlikely to rise significantly. This provides an important foundation for gold to maintain its role as a hedge against policy risks and macroeconomic uncertainty.

From a personal perspective, gold is likely to remain under short-term corrective pressure as markets stay highly sensitive to interest rate expectations, as well as movements in the U.S. dollar and bond yields. However, the current decline does not necessarily signal a weakening trend, but rather a rebalancing phase following a prolonged rally.

In this environment, gold is likely to enter a period of consolidation and range-bound movement, as markets need more time to absorb evolving macro conditions, particularly the shift toward cost-driven inflation and the growing constraints on monetary policy. This phase represents a “repricing” process, during which factors such as persistent inflation, geopolitical risks, and interest rate expectations will be more fully reflected in prices.

Therefore, current price action can be interpreted as a correction–accumulation phase ahead of the next directional move, rather than confirmation of a long-term bearish trend in gold.