Gold Prices Pull Back, Near Four-Week Low Amid Easing Risk Sentiment

On Friday during Asian trading hours, spot gold fell by 1% to $3,293.79 per ounce, its lowest level since June 2. Meanwhile, August gold futures slipped 1.2% to $3,306.70 per ounce. If this trend holds, gold is on track for a weekly loss of over 2%, marking its second consecutive weekly decline.

Since reaching a historic high in late April, gold prices have dropped nearly 6%, highlighting a shift in market sentiment and increasing caution among investors.

Three Key Drivers Behind the Pullback

Several key factors are contributing to the recent decline in gold prices:

1. Diminished Safe-Haven Demand

The ceasefire agreement between Israel and Iran has remained in place since Thursday, easing geopolitical concerns in the Middle East. As risk sentiment improves, demand for safe-haven assets like gold weakens accordingly.

2. Focus Shifts to Inflation Data

Investors are now awaiting the release of the May Personal Consumption Expenditures (PCE) Price Index—regarded as the Federal Reserve's preferred inflation gauge. Market consensus expects both headline and core PCE to rise 0.1% month-over-month, with annual increases projected at 2.3% and 2.6%, respectively.

3. Dollar Strength Applies Pressure

Though still near a three-year low, the U.S. dollar index rose 0.1% during the Asian session. A stronger dollar typically makes dollar-denominated assets like gold more expensive for non-U.S. buyers, reducing demand and placing downward pressure on prices.

Challenges Ahead for the Market

Looking forward, the gold market faces several headwinds:

First, policy uncertainty persists. Fed Chair Jerome Powells testimony to Congress this week highlighted caution against premature rate cuts and noted that inflation driven by trade tariffs could prove more persistent than expected. Such hawkish tones may delay policy easing, thus capping gold's upside.

Second, investors are awaiting clearer direction. If upcoming inflation data does not support rate-cut expectations, gold may continue its downward trend in the near term.

Investor Challenges in a Volatile Environment

The recent volatility presents challenges—and potential opportunities—for gold investors:

Navigating increased volatility: With gold showing no clear short-term trend, investors need to be especially prudent in managing entry and exit points.

Interpreting rate expectations: If the Fed delays rate cuts, real yields could stay high, weakening golds appeal. Conversely, clear signs of disinflation could trigger a strong rebound.

Rebalancing asset allocations: As risk assets such as equities or high-yield bonds remain attractive, some investors might reduce gold holdings, adding to downside pressure.

What Drives Gold Prices?

Gold is a unique asset whose value is influenced by a wide range of factors. Heres a breakdown of the key drivers:

1. Interest Rates and Inflation

Gold is sensitive to real interest rates. Higher rates make yield-bearing assets more attractive compared to gold, which does not generate income. On the other hand, rising inflation boosts golds appeal as a hedge against currency devaluation.

2. U.S. Dollar Movements

Since gold is priced in dollars, a stronger dollar typically weighs on gold prices, while a weaker dollar tends to lift them.

3. Geopolitical and Economic Uncertainty

Gold thrives during periods of global uncertainty. Tensions in the Middle East, economic slowdowns, or financial instability often drive investors to seek refuge in gold.

4. Central Bank Policies

The monetary stance of major central banks plays a critical role in golds medium- to long-term trajectory. Tightening cycles generally hurt gold, while dovish policies can provide support.

5. Supply and Demand Dynamics

Though gold supply is relatively stable, factors such as increased central bank purchases, rising retail demand (e.g., for jewelry or investment bars), or higher ETF inflows can provide upside support. Technical levels also drive short-term momentum, with key support or resistance zones triggering rapid price shifts.

Gold‘s latest pullback—falling to a four-week low—is largely a reflection of easing geopolitical tensions, stronger-than-expected inflation resilience, and uncertainty around the Fed’s next move. Although short-term pressures remain, gold continues to hold long-term value as a strategic hedge. Investors should remain observant of key indicators like U.S. inflation data and Fed commentary, while adopting a disciplined approach to gold allocation amid shifting macro conditions.