Gold: Is a Fall to $4,000 on the Cards?

• Gold is falling as the US dollar strengthens.
• The S&P 500’s pullback is accelerating the precious metal’s decline.

The US dollar capitalised on the euro’s weakness and continued its advance, reaching its highest level in over a year and pushing EURUSD to near 1.1350. European business activity remains in contraction territory, below 50 on the PMI index, for the third month, whilst Christine Lagarde has made it clear that the futures market’s expectations of further ECB rate rises are overblown. According to the ECB President, there is no need to react aggressively to the consequences of the armed conflict between the US and Iran.

As more tankers pass through the Strait of Hormuz, Brent crude has returned to levels seen before the conflict in the Middle East. The view is gaining ground in the markets that the surge in inflation will be temporary. The ECB can afford to wait after raising rates in June, given that business activity data point to weakness in the eurozone economy. By contrast, following the Fed’s ‘hawkish’ shift, CME derivatives are pricing in two further Fed rate-tightening moves in 2026.

The weakening of the euro is fuelling a rally in the USD index, whilst yields on US Treasury bonds are rising. For two-year bonds, yields have reached their highest level since February 2025. This backdrop is extremely unfavourable for gold. XAUUSD prices have returned to the 7-month low region. Although gold is viewed as a hedge against inflation, its fate depends on the Fed’s response to price trends. Kevin Warsh’s determination to bring the PCE back to target at all costs does not bode well for gold.

Unsurprisingly, following Goldman Sachs, Deutsche Bank has also lowered its forecast for the precious metal from $4,800 to $4,300 per ounce in the fourth quarter.

Gold is coming under pressure from selloffs in the US equity market. Expectations of a Fed rate rise as early as September, and possibly even in July, are causing panic amongst investors. So too are concerns about the inefficiency of technology companies. AI costs are colossal, whilst service prices are set to fall gradually due to competition. Gold is used as a liquidity tool. It is sold to meet margin requirements. Therefore, a fall in the S&P 500 is bad news for the precious metal.

The FxPro Analyst Team