Gold Retreats From Two-Week High as Middle East Tensions and Hawkish Fed Weigh

As of 4:00 a.m. ET Wednesday, spot gold was trading around $4,074/oz in pre-market action, extending losses from the prior session. On Tuesday, prices tumbled as the Middle East crisis escalated and the Fed's June minutes delivered a hawkish surprise. Markets are now digesting the complex chain: geopolitical risk feeding into oil, oil into inflation expectations, and inflation expectations into the Fed's policy path.

Middle East Escalation: Oil Surge and Inflation Fears Reignite

The week's dominant driver for gold has been the sharp deterioration in Middle East geopolitics. On Tuesday, two oil tankers were attacked in the Strait of Hormuz, and Iran said it would not resume peace talks unless President Trump dropped threats of renewed war.^[Kitco] The situation escalated further Wednesday. Speaking at the NATO summit in Ankara, Trump said the interim deal aimed at ending the conflict with Iran is "over" and that he no longer wishes to engage with Tehran.^[Kitco] In response, Iran claimed to have attacked U.S. military bases in Bahrain and Kuwait.^[Kitco]

Kitco analysts Gary Wagner and Joseph Wagner note that geopolitical fear is no longer flowing directly into gold. Instead, it first hits crude oil, then inflation expectations, and finally Fed policy — by the time it reaches gold, the tailwind has turned into a headwind.^[Kitco] On Wednesday, WTI crude surged 6.45% to $74.93/bbl, and Brent rose 6.18% to $78.73/bbl.^{[Kitco NewsWire]} The jump in energy prices stoked inflation fears, making gold — a non-yielding asset — less attractive in a high-rate environment.

Fed Minutes: Rate Path Divergence, Inflation Still Priority One

The June FOMC minutes, released Wednesday, were the other major market focus. This was the first meeting chaired by new Fed chief Kevin Warsh. The minutes revealed clear divisions on the rate path. Among the 18 officials who submitted year-end rate forecasts, nine saw at least one hike, eight saw no change, and one favored a cut.^[Kitco] Warsh himself did not submit a forecast, making him the first sitting chair to do so since the Fed began publishing its "dot plot" in 2012.^[Kitco]

The minutes cited tariffs, rising energy costs, and the ongoing impact of the Hormuz disruption as factors keeping inflation elevated in the near term, with risks still tilted to the upside.^[Kitco] "I think the reality is that the Fed remains very focused on controlling inflation — so 'higher for longer' still seems the most likely path," said Peter Grant, vice president and senior metals strategist at Zaner Metals.^[Reuters]

According to the CME FedWatch tool, traders' probability of a September rate hike rose from 60% on Tuesday to around 67% on Wednesday.^[Reuters] That shift was reflected directly in bond markets: the 10-year Treasury yield rose to 4.5812% on Wednesday, the 2-year to 4.2182%, and the dollar index DXY climbed to 101.18, its highest since July 2.^{[Kitco NewsWire]}

Technical Outlook & Institutional Views: Near-Term Pressure, Long-Term Bull Case Intact

On the technical side, Kitco NewsWire notes that spot gold bears hold the near-term technical advantage. Prices have fallen to a five-day low of $4,022 and have again failed to break above a converging uptrend line and the 20-day moving average. Bulls' next upside target is to push prices back into the $4,162.36–$4,214.34 resistance zone, while bears' near-term downside target is a break below $4,041.65.^{[Kitco NewsWire]} Additionally, the 50-day moving average crossed below the 200-day moving average on June 30, forming a "death cross" that technical analysts view as a clear warning signal that momentum has turned decisively lower.^[Kitco]

Despite near-term headwinds, several institutions remain bullish on gold's long-term prospects. In a report Tuesday, Bank of America cut its 2026 average gold price forecast by 14% to $4,360, citing a more hawkish Fed, but noted that gold could still reach $5,000 once the tightening cycle ends.^[Reuters]

Structural Support: Central Bank Buying & Infrastructure Development

While Western traders reassess rate expectations, the structural underpinnings of the gold market continue to strengthen. The People's Bank of China added to its gold reserves for the 20th consecutive month, increasing its holdings to 75.44 million troy ounces at end-June from 74.96 million a month earlier.^[Kitco] Kitco analysts emphasize that the PBOC doesn't chase headlines, trade FOMC minutes, or care about September's FedWatch probabilities — it is executing a multi-year strategic reallocation.^[Kitco]

Separately, Hong Kong launched a gold central clearing system on Tuesday and simultaneously resumed gold futures trading, aiming to position itself as a regional gold reserve hub.^[Reuters] Such infrastructure developments typically accompany lasting shifts in where gold is held and traded.

In other precious metals Wednesday, spot silver fell 2.42% to $58.5681/oz, platinum dropped 3.6% to $1,582.13/oz, and palladium slid 4.3% to $1,221.97/oz.^[Reuters]

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