The U.S. Federal Reserve, in its meeting held on Wednesday, June 18, issued a series of warnings regarding a potential rise in inflation, which reduced the attractiveness of gold as a safe-haven asset, despite the escalating tensions in the Middle East.
The Fed's warnings point to a smaller-than-expected number of interest rate cuts this year, further undermining gold’s appeal.
As a result, spot gold contracts dropped to near the $3,360 per ounce level after falling by 0.6% during Wednesday's trading session.
This decline comes after the Fed decided to keep interest rates unchanged, with monetary policymakers indicating expectations of only two rate cuts by the end of the year.
Fed Chair Jerome Powell confirmed that the Federal Open Market Committee still expects tariffs to push prices higher, with their impact to be seen later.
Impact of the Fed Meeting on the Dollar
The U.S. Dollar Index (DXY) posted strong positive performance on Wednesday following the Fed meeting.
The Fed's hawkish expectations—pointing to continued inflation and fewer rate cuts—pushed investors toward the dollar as a safe haven, boosting its strength against other major currencies.
New Economic Projections Influencing Fed Members’ Decisions
The Fed’s policymakers released their new economic projections—the first since the wave of tariffs initiated by President Donald Trump in April—which showed expectations of slower growth, higher inflation, and lower employment rates this year.
A notable rise in consumer prices may limit the chances for monetary easing, which is negative for gold as a non-yielding asset, while supporting the strength of the dollar.
Geopolitical Tensions Provide Partial Support for Gold
Despite the positive impact of the Fed meeting on the dollar, which put gold under downward pressure, gold continues to receive limited support from ongoing tensions in the Middle East.
Trump stated that Iran had wasted a chance to reach an agreement regarding its nuclear program but gave no commitment on whether the U.S. would join the Israeli attack.
The continuation and potential escalation of geopolitical tensions contribute to ongoing uncertainty, making investors cautious about any development that could intensify the Israeli-Iranian conflict—something that may reignite demand for gold.
This is especially true in light of continued strong central bank purchases and steady inflows into exchange-traded funds, which have helped push the precious metal up about 30% since the beginning of the year.
However, it appears that the market’s current focus on the Fed’s monetary policy outweighs this support.
After gold investors absorbed the shock of Israel's strike on Iran—which led to a temporary price spike—they returned their attention to the Fed’s economic outlook and monetary policy, limiting further gains.
Although geopolitical events typically support gold as a safe haven, the impact of the Fed’s inflation warnings and its forecast of fewer interest rate cuts has had a stronger influence on gold’s recent direction.
Key Price Levels to Watch for Gold
Resistance Level:
$3,400 – This is a key price barrier. A break above it may unleash further price gains, potentially pushing prices back to $3,500.
Support Level:
$3,360 – A break below this level could signal increased selling pressure, potentially driving prices down to $3,300
