Gold Prices Plummet as Fed Tensions Rise

Gold prices continued their downward trend on Monday, falling as much as 1% to below $4,400 an ounce due to renewed tensions in the Middle East and expectations of higher interest rates from the Federal Reserve.

The decline extends last Friday's sell-off, when gold fell by its largest one-day margin since early June following hawkish comments from Fed Chair Kevin Warsh.

Warsh reaffirmed the central bank's commitment to its inflation target and indicated policymakers are not yet confident that price pressures are easing sufficiently. This has led traders to increase their predictions of a rate hike at the Fed's September meeting, with some pricing in over 50% chance.

GAMA Asset Management's Rajeev De Mello expects gold to trade around $4,200 to $4,300 an ounce in the near term, but maintains his gold exposure as a longer-term investor. Despite this, Goldman Sachs remains bullish on gold, forecasting further gains this year driven by central bank purchases.

Goldman analysts expect central banks to purchase an average of 50 tonnes of gold per month in 2026, up from an average of 17 tonnes per month before 2022. They also downplayed concerns that inflation will force the Fed to raise rates, predicting a lower inflation trend to keep the Fed on hold this year.

Against this backdrop, Goldman expects gold to reach $4,900 an ounce by the end of 2026.