Could a hawkish Fed push gold below $4,000 after dollar’s latest rebound?

Gold fell towards $4,050 an ounce in Asian trading on Tuesday as a stronger dollar and uncertainty over the Federal Reserve’s next move increased pressure on the non-yielding metal.

Spot bullion declined about 0.7% to $4,044.81 by 0239 GMT on July 28, while the dollar traded near a one-month high.

Investors expected the Fed to hold its 3.50%-3.75% target range on Wednesday, but CME FedWatch, derived from 30-day federal-funds futures, showed a roughly 38% chance of a quarter-point increase.

The headline risk is therefore a scenario, not a forecast.

Gold has already shown it can trade below $4,000, with front-month futures briefly touching about $3,975 in late June before recovering.

A firm dollar turns Fed uncertainty into pressure

Gold’s immediate challenge is the cost of holding an asset that pays no interest.

A stronger US currency makes bullion more expensive for buyers using euros, yen and other currencies, while rising Treasury yields improve the relative appeal of bonds.

DHF Capital chief executive Bas Kooijman said in a note reported by The Wall Street Journal on Tuesday that the Fed, Bank of Japan and Bank of England were likely to leave rates unchanged.

However, “a hawkish tilt could cap any gains in gold”, he warned.

That distinction matters because an unchanged rate would not automatically be bullish.

Guidance pointing to a possible September increase, persistent inflation or additional tightening could strengthen the dollar and lift yields even without an immediate policy move.

The Middle East adds another complication. A pause in US-Iran attacks has reduced some demand for defensive assets.

Yet the resulting fall in oil prices could ease inflation pressure and reduce the Fed’s need to tighten aggressively.

Deutsche Bank’s $3,800 risk case raises the stakes

A sustained break below $4,000 would probably require a broader repricing of US interest rates rather than one cautious policy adjustment.

Deutsche Bank analyst Michael Hsueh said in a late-June note that resilient economic data and changing Fed expectations had become more important for gold than oil.

“A risk case of pricing 3-4 Fed hikes may bring gold to $3,800/oz,” he said.

Hsueh’s base case was substantially more constructive. He projected gold at $4,800 in the fourth quarter if the Fed remained on hold indefinitely.

The contrast shows how heavily bullion’s direction depends on whether markets price a prolonged pause or a renewed tightening cycle.

An immediate move to $3,800 is not the central expectation. It would require investors to anticipate several increases, likely supported by stronger inflation, employment or growth data.

US GDP and inflation readings later this week could reinforce that scenario even if policymakers stand still on Wednesday.