On Thursday, the global gold market experienced a dramatic session. Just before the Federal Reserve announced its interest rate decision, spot gold was holding firmly above $4,330, having gained more than 6% over the previous four trading days. Market sentiment remained overwhelmingly optimistic. However, once newly appointed Federal Reserve Chair Kevin Warsh completed his debut appearance, everything changed in an instant, with gold prices plunging sharply.

The Federal Reserve’s decision to stand pat was widely expected by the market. On Wednesday, the Fed announced that it would maintain its policy rate within the 3.50%–3.75% range, marking the fourth consecutive meeting without a rate change. The decision itself was hardly surprising. US job growth remains strong, unemployment is relatively low at 4.3%, and inflation continues to run well above the Fed’s 2% target. As a result, most investors had already anticipated no change in interest rates. What truly ignited market volatility was the Summary of Economic Projections released alongside the decision — commonly known as the dot plot.

The latest quarterly projections showed that 9 of the Fed’s 19 policymakers now expect policy rates to move higher this year, while only one official favors a rate cut. This marked a sharp contrast to the previous dot plot, where the median forecast still pointed toward easing. Even more striking, six of the nine officials supporting higher rates expect at least two rate hikes. Markets reacted swiftly. According to CME’s FedWatch Tool, the probability of a December rate hike surged from 61% before the decision to 83% afterward. Short-term interest rate futures markets even began pricing a higher probability of a September rate increase than a continued pause.

During his press conference, Warsh announced a comprehensive review of how the Federal Reserve operates across several key policy areas, including its balance sheet, policy communications, data sources, productivity measurements, employment metrics, and inflation framework. These are all areas that Warsh has criticized for years and reflect his intention to reshape the Federal Reserve into a leaner institution, potentially with less transparency.

Market observers paid particular attention to Warsh’s repeated assertion that interest rates are restrictive only within the housing sector. The remarks made him appear notably more hawkish than his predecessor, Jerome Powell. With inflation still significantly above target, such comments effectively signaled to markets that the door to future rate hikes is now open.

Peace Dividend Once Lifted Gold Prices

Just days before the Federal Reserve decision, the gold market had enjoyed a strong rally. News that the United States and Iran had reached a ceasefire memorandum sent international oil prices sharply lower, easing inflation expectations and helping gold prices rise more than 6% over four consecutive trading sessions.

This latest plunge in gold prices was the result of a combination of factors, including a shift in Federal Reserve policy expectations, changes in the Fed’s communication style under Warsh, and broader macroeconomic developments. In the near term, as rate hike expectations become increasingly priced into markets, gold may continue to face downside pressure. Investors should pay close attention to upcoming economic data releases and the progress of Warsh’s policy review initiatives. If inflation declines more slowly than expected or geopolitical tensions in the Middle East continue to ease, gold could still find room for a rebound.

Market Analysis:

Gold has staged a modest rebound following its decline on the four-hour chart, while MACD lines and momentum bars are converging near the zero axis.

The ongoing trend of central bank gold purchases, geopolitical uncertainty, and the possibility of future monetary policy shifts continue to provide support for gold prices. Investors should remain cautious and closely monitor key variables such as the US Dollar Index, real yields, and developments in follow-up US-Iran negotiations, while looking for opportunities to gradually build positions during periods of market weakness.