Gold prices have dropped to their lowest level in nearly a month, falling below $3,300 an ounce in Asian trade on Friday. It’s now on track for a second straight weekly loss, down more than 2%, and nearly 6% off the record highs hit in late April.
The trigger? A ceasefire between Israel and Iran that’s actually holding. Brokered by Donald Trump, the agreement has taken some of the heat out of global markets and, in turn, knocked the shine off gold’s safe-haven appeal. When missiles stop flying, so does panic-buying of bullion.
But the calm might not last, and neither will the market’s focus on geopolitics. Attention has already shifted to what the US Federal Reserve does next. On Friday, investors will be watching the latest reading of the PCE index, the Fed’s preferred inflation measure, for clues about interest rate policy. That could end up being far more decisive for gold than any diplomatic breakthrough in the Middle East.
Markets are betting on a modest 0.1% rise in both headline and core inflation for May. Year-on-year, though, the core reading is expected to rise to 2.6%. That’s not runaway inflation, but it’s still high enough to keep Fed officials from reaching for the rate-cut lever too quickly.
Jerome Powell, the Fed Chair, was in front of Congress this week, warning, again, that inflation risks remain and that price pressures from Trump’s new tariffs could prove more persistent than expected. Those tariffs, targeting Chinese imports, are part of the president’s broader push to “re-shore” manufacturing, but they risk adding to inflation just as markets are hoping for cuts.
Trump, meanwhile, has turned up the heat on Powell, criticising him publicly and hinting at a possible replacement as early as September. The message is clear, monetary policy isn’t just about inflation anymore. It’s increasingly about politics.
So what does all this mean for gold? In the short term, less fear means lower prices. But longer term, investors might not want to get too relaxed. Inflation is still sticky, interest rate policy is still uncertain, and the White House is not exactly predictable. If anything, this recent dip might be more of a breather than a trend.
Gold thrives on doubt. And while the headlines might be quieter this week, the tension is far from gone.