Gold is down by more than 3% today, to $3,994.86 per ounce, following an unexpectedly hawkish speech by Fed Governor Christopher Waller. Waller signalled that a scenario of monetary policy tightening is just as likely as further easing, which completely shifts the market narrative of recent weeks. Key takeaway: the Fed may need to raise interest rates if this week’s core CPI reading turns out to be hot.
The market reacted immediately by repricing expectations – short-term interest rate futures pushed the probability of a July rate rise from 35% to 45%, whilst traders are now estimating a 50% chance of any rate rise this month. This is a dramatic shift from the consensus just a few days ago, when the market was pricing in rate cuts instead. Source: CME Fed Watch Tool
Waller emphasised that the labour market is stable and close to the maximum employment target, so it is not a source of inflationary pressure. Instead, he identified three factors driving inflation: tariffs, energy prices linked to the situation in the Middle East, and robust growth in consumption, supported by investment in AI. Core PCE rose from 3.0% in December to 3.4% in May, whilst the headline figure now stands at 4.1% – a significant deviation from the Fed’s target.
This is a direct blow to gold: higher real interest rates and a stronger dollar (a typical reaction to a hawkish Fed) reduce the metal’s appeal as a non-yielding asset that is negatively correlated with the USD. Tomorrow’s CPI reading will now be a key catalyst – a hot reading could confirm the rate hike scenario and put further pressure on gold, whilst cooler data could partially reverse today’s sell-off.
GOLD is currently trading within the key support zone defined by the recent lows, which were the lowest levels recorded since 2025. Source: xStation
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