Gold (XAU/USD) dropped to a nearly two-week low during the Asian session on Wednesday, marking its fifth negative move in the past six days. This decline was driven by increased bets on a US Federal Reserve rate hike, which pushed the US Dollar (USD) to its highest level since May 2025, diverting flows away from gold, a non-yielding asset [1]. The US Dollar Index (DXY) traded near a fresh 13-month high of 101.45, supported by robust US macroeconomic data and a complex geopolitical landscape [2].
Recent US economic indicators reinforced the narrative of 'US exceptionalism.' The S&P Global Composite PMI for June rose to 52.2 from May's 51.5, signaling healthy business expansion. Manufacturing output jumped to 55.7 from 55.1, beating forecasts of 54.8, while the Services PMI increased to 51.3 from 50.7, surpassing the consensus estimate of 51.0 [2]. These strong data points contributed to the USD's strength and further weighed on gold prices [1][2].
Geopolitical developments also played a role. US President Donald Trump claimed Iran had 'fully and completely' agreed to the highest level of nuclear inspections, but Iran's state media and Foreign Minister Abbas Araghchi denied any new commitments, keeping geopolitical risk premiums in play and favoring USD bulls [1][2]. Additionally, Iran's chief negotiator warned that the Strait of Hormuz would remain under Iranian oversight, while the US Treasury Department issued a temporary 60-day sanctions waiver for Iranian crude oil, easing global supply concerns and contributing to lower oil prices [1][2].
Market expectations for a Fed rate hike have increased significantly. According to the CME FedWatch tool, traders are now pricing in an 86.1% chance of a Fed hike in December, up from 61% before last week's FOMC meeting [2]. Nine of the Fed's 19 committee members believe a rate increase is necessary to combat inflation, and new Fed Chair Kevin Warsh emphasized price stability, suggesting the central bank may not rush to cut rates even amid declining growth [1]. Traders are now awaiting the US Personal Consumption Expenditures (PCE) Price Index, due Thursday, for further direction [1][2].
CONCLUSION
Gold has come under significant pressure as the US Dollar strengthens on the back of hawkish Fed signals and strong US economic data. Heightened geopolitical tensions and easing oil prices have further supported the Greenback, increasing the likelihood of deeper losses for gold. Market participants are closely watching upcoming US PCE data for additional cues on inflation and Fed policy.