Gold slips to two-week low as Fed rate-hike bets buoy dollar

Gold extended its slide Wednesday, hitting the lowest in almost two weeks. Spot gold fell 1.1% to $4,064.01 an ounce by 0431 GMT, after touching its weakest since June 11. U.S. gold futures for August delivery dropped 1.7% to $4,080.80.

The trigger was a fresh repricing of Fed rate expectations. Traders now price three rate hikes from the Federal Reserve this year, according to the CME FedWatch Tool. Before last week's Fed meeting, the market had bet on just one. The dollar climbed to its highest in over a year, making bullion more expensive for overseas buyers.

Ilya Spivak, head of global macro at Tastylive, summed up the dynamic. "What we're witnessing here is the evolution of the pressure that gold came under as a function of the war. The sort of inflation to higher rates dynamic has appeared in bonds falling, yields rising, the dollar rising, and gold falling."

Gold has lost about 23% since the onset of the U.S.-Israeli war on Iran in late February. Rising inflationary pressure through the spring drove expectations that the Fed would raise rates, a direct headwind for a non-yielding asset. The gold profile page tracks the metal's sensitivity to real yields and the dollar, and both are moving against it now.

Complicating the picture is the U.S.-Iran peace deal. President Trump said Tuesday that Iran had agreed to nuclear inspections "into infinity." Tehran denied making that concession. The two sides also disagree on a provision that would give Iran access to frozen overseas funds. The conflicting signals raise questions about the ceasefire's durability – the ceasefire had itself been a factor in gold's earlier slide. If the deal unravels, geopolitical risk could offer a floor.

For now the market is laser-focused on rates. The next catalyst is Thursday's Personal Consumption Expenditures data, the Fed's preferred inflation gauge. A hot print would reinforce the three-hike view and likely push gold below $4,000. Spivak laid out the path: "If we continue to mostly focus on inflation and we take out the $4,000 level, then we're going to be in the direction of $3,800, and we're going to have a conversation about whether a test of $3,500 follows next."

A softer PCE reading could force a rethink on the rate path and give gold a bounce. The dollar's rally is stretched after hitting a one-year high Wednesday. Any pullback would ease the pressure on bullion.

Among other precious metals, silver fell 1.6% to $61 an ounce. Platinum lost 1.2% to $1,632.04. Palladium slipped 1% to $1,225.35.

Thursday's PCE print is due at 8:30 a.m. ET. Gold is sitting just above $4,000.