Gold price drops below $4,000, down 12% in June - biggest monthly decline since 2008: what lies ahead?

Gold price outlook: Gold prices continued to slide on Wednesday, extending losses for a third straight session as rising US Treasury yields, a stronger dollar and growing expectations of a Federal Reserve interest rate hike weighed on investor sentiment.

The precious metal has shed 12% in June, putting it on track for its fourth consecutive monthly decline. Before this, the biggest monthly fall was 18.5% in October 2008.

Moreover, bullion is also set for its first quarterly decline since 2024 and its largest quarterly fall since the June quarter of 2013, as the Iran war sent energy prices sharply higher, stoking inflation fears and boosting expectations of interest rate hikes. Moreover, rising US Treasury yields and growing bets that the Federal Reserve will raise interest rates continued to pressure the non-yielding metal.

Over the last three months, gold has declined by around 20%. However, it has fallen more than 8% over the past six months, while remaining 20% higher over the last one year.

Gold price today

In today's deals, Spot gold was down 0.8% at $3,974.75 per ounce as of 0849 GMT, after touching its lowest level since last November at $3,942.99 in the previous session. US gold futures for August delivery fell 1.3% to $3,987.70 per ounce.

A selloff in US Treasuries on Tuesday pushed the benchmark 10-year yield up by as much as 9 basis points before easing from the day's highs. By Wednesday, yields were climbing again, rising 4 basis points to 4.465%, outpacing increases in euro zone bond yields.

A stronger US dollar also weighed on bullion by making it less affordable for overseas buyers. The dollar strengthened against all its Group-of-10 peers as traders awaited key speeches from several central bankers, including Federal Reserve Chairman Kevin Warsh, while expectations of another interest rate hike continued to build.

The Bloomberg Dollar Spot Index climbed 0.2% after rising 0.6% in the previous quarter. Meanwhile, the Japanese yen weakened 0.1% to 162.77 against the dollar after hitting a 40-year low earlier this week.

Moreover, according to the CME FedWatch Tool, traders now see a nearly 67% chance of a rate hike by September. On the geopolitical front, concerns also persisted over US-Iran diplomacy after Tehran said it would not meet senior US envoys who travelled to the region following the recent outbreak of hostilities.

Why is gold falling

Gold and silver remained under pressure near seven-month lows as rising Treasury yields continued to weigh on sentiment. At the same time, fading hopes of a lasting US-Iran peace agreement have kept inflation concerns elevated and strengthened expectations of further Federal Reserve rate hikes. Gold has recorded its first quarterly loss since 2024 and its sharpest decline since the second quarter of 2013, when an earlier Gulf conflict similarly fuelled inflation fears.

Geopolitical tensions also remain elevated. Senior US officials who arrived in Doha are not expected to hold high-level talks with Iran, according to a Qatari official, raising doubts over progress towards a durable end to the conflict. Oil prices also climbed after Iran signalled it would skip meetings with visiting US envoys following the latest flare-up in hostilities, reducing hopes of an imminent diplomatic breakthrough.

Macro-economic factors have added to the pressure. Traders are assigning roughly a 67% probability to a September rate hike, according to the CME FedWatch Tool. Investors are also awaiting June's ADP employment report later on Wednesday and Thursday's nonfarm payrolls report, both of which could offer fresh clues on the Federal Reserve's rate trajectory and, in turn, the near-term direction of bullion.

Gold Outlook

With gold prices witnessing their steepest monthly and quarterly declines in years, analysts believe the near-term outlook will largely depend on interest rate expectations, the strength of the US dollar, bond yields and geopolitical developments in the Middle East. Here's what experts have to say:

Tata Mutual Fund believes gold prices may consolidate in the near term amid mixed macroeconomic signals, although pressure could build from expectations of further rate hikes, a stronger dollar and elevated bond yields.

"Gold price may consolidate in the near term, amid mixed macro signals, while some pressure may build up over rate hike expectations, a stronger dollar, and elevated bond yields. Short-term volatility of around ±5% is likely on Geopolitical developments, particularly around the US–Iran conflict. For Indian investors, rupee depreciation should cushion the downside, keeping domestic gold prices in a tighter range versus international markets," predicted Tata Mutual Fund.

The fund house added that the medium-to-long-term outlook remains bullish due to supportive structural and cyclical fundamentals and said investors may look to accumulate gold on any decline in prices.

Renisha Chainani, Head - Research at Augmont, said gold has broken an important technical level, but oversold conditions could still trigger a rebound.

"Gold has cracked its critical $4,000 floor, sliding toward $3,960. A confirmed breakdown could pave the way to $3,600. Given oversold conditions, a relief rally toward $4,100 and $4,165 remains a credible scenario," said Renisha Chainani, Head - Research at Augmont.

While analysts see near-term volatility persisting amid uncertainty over US interest rates, bond yields and geopolitical developments, they believe long-term fundamentals for gold remain supportive.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.