On Monday, spot gold traded within a narrow range. Over the past week, the US Dollar Index climbed to a 13-month high, recording its second consecutive weekly gain. The strength of the US dollar has continued to put downward pressure on gold prices.

The primary driver behind the dollar's latest rally is the market's aggressive repricing of the Federal Reserve's policy outlook. The new Fed Chair's first policy statement was widely interpreted as hawkish. Markets quickly brought forward expectations for the next rate hike to as early as September, triggering a sustained rally in the US dollar. This strength is not solely the result of the new Fed leadership or recent economic data. The US dollar has been in a bull market since January, making the recent pullback relatively insignificant.

The dollar's strength is also reflected in another important shift—the decoupling of gold from geopolitical risk.

Historically, escalating tensions in the Middle East would drive safe-haven flows into gold and push prices higher. This time, however, every new headline regarding tensions in the Strait of Hormuz has prompted investors to sell gold in favor of the US dollar. The narrative surrounding gold has clearly changed. During the earlier escalation of the US-Iran conflict, gold prices rose while oil prices fell, creating a noticeable negative correlation. Now, however, these two assets appear increasingly likely to move in the same direction—both declining. The US dollar's status as the ultimate safe-haven asset has become increasingly evident during this latest wave of gold selling.

If dollar strength represents the final blow to gold, then the Federal Reserve's dramatic shift in policy expectations was the first domino to fall.

Only a few months ago, markets were actively debating when the Federal Reserve would begin cutting interest rates. However, the inflation shock triggered by the US-Iran conflict has completely changed that narrative.

The latest data showed that the US Personal Consumption Expenditures (PCE) Price Index rose 4.1% year-over-yearin May, while core PCE increased to 3.4%, both reaching multi-year highs. Inflation has not eased—it has accelerated.

The Federal Reserve responded quickly and decisively.

At its latest policy meeting, nine of the nineteen policymakers projected at least one rate hike before the end of the year, compared with zero officials making such a projection back in March.

Markets rapidly adjusted their pricing accordingly. The probability of a September rate hike briefly climbed to around 70%, and although it eased slightly following the inflation report, it remains elevated at approximately 59%.

Market Analysis:

Gold continues to consolidate lower on the 4-hour chart, with both the MACD lines and histogram contracting around the zero line.

Several major investment banks have already significantly lowered their year-end 2026 gold price targets.

However, despite widespread bearish sentiment, some institutions continue to maintain a bullish outlook, arguing that the Federal Reserve will leave interest rates unchanged throughout this year.

If geopolitical tensions ease during the second half of the year, accompanied by declining oil prices and softer inflation, improving expectations for a more accommodative Federal Reserve policy stance could provide the catalyst for gold to resume its upward trend.