The global gold market is undergoing a dramatic reversal.

On Wednesday, gold prices fell sharply. The latest selloff caught many bullish investors off guard after gold had previously climbed to record highs earlier this year, prompting the market to reassess the long-term outlook for precious metals.

Amid a strong rebound in the US dollar, rising expectations for Federal Reserve rate hikes, and easing geopolitical tensions, gold’s safe-haven appeal has temporarily faded.

During Thursday's early trading session, spot gold fluctuated within a narrow range near the US$4,000 level.

The decline in gold has been exceptionally rapid.

Investor attention has now shifted toward macroeconomic factors.

The strengthening US dollar has become the primary catalyst behind gold’s weakness. As the US Dollar Index climbed to a 13-month high, approaching the 102 level, dollar-denominated gold became more expensive for holders of other currencies, naturally suppressing demand.

The dollar’s strength has not emerged by accident.

Since the Federal Reserve delivered a distinctly hawkish message at last week's policy meeting, expectations for additional rate hikes this year have increased significantly.

Investors are now preparing for the possibility of the Federal Reserve raising interest rates as early as July or September, with the probability of a September hike currently standing at approximately 66%.

Comments from Federal Reserve officials have further reinforced those expectations.

Against a backdrop of an economy that appears relatively resilient, policymakers have increasingly shifted their focus toward fighting inflation rather than simply supporting economic growth.

Higher interest rates directly reduce gold's attractiveness because, as a non-yielding asset, the opportunity cost of holding gold rises significantly in a high-rate environment.

Analysis from institutions including Barclays also suggests that the US dollar continues to receive modest buying support toward month-end.

Although some quarterly valuation models indicate potential selling pressure, the dollar’s near-term strength is unlikely to reverse quickly.

Meanwhile, the selloff in US technology stocks has indirectly strengthened the US dollar’s position as a safe-haven asset.

Investors are now waiting for Thursday’s release of the US Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation measure.

Should the data come in above expectations, it could further strengthen the case for additional rate hikes and increase downside risks for gold.

Gold’s sharp decline has also been closely linked to the unexpected easing of geopolitical tensions.

The preliminary peace agreement between the United States and Iran is gradually allowing oil supplies that had previously been constrained by tensions surrounding the Strait of Hormuz to return to the market.

Lower oil prices have eased inflation concerns while simultaneously reducing gold’s attractiveness as an inflation hedge.

Market Analysis:

Gold continues to trend lower on the 4-hour chart, with both the MACD lines and histogram converging below the zero line.

The current correction in gold is both an inevitable consequence of macroeconomic developments and a market adjustment following previously excessive bullish expectations.

Regardless of short-term volatility, gold remains an important component of global asset allocation, and its long-term strategic value has not diminished.