Gold: has it bottomed out at $4,300?

Gold: has it bottomed out at $4,300?

·         Gold is trying to find a bottom, bracing for the US CPI release.

·         China continues to buy gold for the 19th consecutive month.

The US dollar retreated after Israel and Iran announced a ceasefire. Donald Trump urged them not to shoot at each other. Nevertheless, the adversaries reserve the right to resume hostilities, keeping tensions high in the Middle East, which supports the greenback as a safe-haven asset.

Investors are fixated on Donald Trump’s determination to strike a deal with Tehran at any cost and are using the positive news to buy EURUSD. However, according to BMO Capital Markets, headlines are noise, whilst regime change is the signal. Oil prices will not collapse following the reopening of the Strait of Hormuz, and high US inflation is set to persist for some time. The new administration will force the Fed to raise rates and make the US dollar the favourite in the forex market. The firm recommends buying the greenback against the euro, the pound and the yen.

This reasoning holds. With low unemployment and a tight labour market, any acceleration in US economic growth will lead to higher wages. This will push consumer prices upwards and prompt the Fed to tighten monetary policy. The federal funds rate could be raised even now. Inflation has long exceeded the 2% target, and the labour market is at its strongest since 2024.

The prospect of the Fed moving towards monetary tightening, combined with rising oil prices due to the escalation of the conflict in the Middle East, has pushed gold back to levels seen at the start of 2026. The precious metal has wiped out all its gains this year due to the strengthening US dollar and rising Treasury bond yields.

Even active buying by central banks is failing to help gold bulls. The People’s Bank of China increased its reserves by 320,000 ounces in May, having purchased gold continuously for 19 months. This is the longest such streak since 2015, when regular publication of these statistics began.

The next test for gold will be the May US inflation report. Consumer prices are expected to rise from 3.8% to 4.2%, and core CPI from 2.8% to 2.9%. Such trends will increase the likelihood of the Fed tightening monetary policy and put pressure on gold.

Summary: Gold is under pressure from a strong dollar and expectations of accelerating US inflation. Even Chinese buying is not helping: the increased likelihood of a Fed rate hike is heightening the risks of a decline.

By the FxPro Analyst Team