Gold speculators are reeling from a dramatic market reversal. On June 11th, London gold prices staged an epic collapse, with an intraday swing exceeding $80 per ounce. As of 2:19 PM, spot gold in London was trading at $4,085 per ounce, having touched a low of $4,035.41 earlier in the day, marking an 11-week low. The previous session saw a staggering single-day drop of $188, a decline of 4.44%, representing the largest daily fall this year and erasing all year-to-date gains, turning them into losses. In parallel, the main Shanghai gold futures contract broke below the ¥900 per gram level, plunging to as low as ¥885 per gram, a cumulative decline of over 25% from this year's peak.

"I purchased accumulation gold at ¥1,100 per gram, expecting the price to keep rising like it did last year after I bought. I never imagined this year's market would be the complete opposite; after my purchase, the price has been falling continuously, with the drop far exceeding my expectations. Seeing the international gold price plummet again last night, and today the ICBC accumulation gold price falling to ¥905 per gram, I'm torn between cutting my losses and holding on, worried the price will keep falling. It's agonizing, and I won't dare to try bottom-fishing so easily in the future," said Ms. Li, a gold investor, in an interview.

US Inflation Hits 3-Year High

Data released by the US Labor Department shows that driven by continued increases in energy costs, the US Consumer Price Index (CPI) rose 4.2% year-on-year in May, up from 3.8% in April, reaching its highest level since May 2023. Regarding this, Xu Yaxin, a researcher at the Beijing Gold Economic Development Research Center, stated in an interview that overall inflation resilience persists, while core inflation cooled more than expected. Overall, this data did not show a comprehensively overheated situation exceeding expectations, with inflation presenting a dual structure of "energy-driven, core-weakening."

Simultaneously, Yuan Zheng, an analyst at Galaxy Futures, noted in an interview that looking at the overall CPI, the 4.2% year-on-year increase in May was exactly in line with market expectations, but it marked the third consecutive month of robust growth, continuously increasing the cost-of-living pressure on households. The inflation rate has now exceeded wage growth for the second consecutive month, further eroding real purchasing power.

Furthermore, Yuan Zheng indicated that from the perspective of core CPI, the month-on-month increase in May was only 0.2%, lower than the market expectation of 0.3%. This suggests the overall CPI rise was primarily driven by the external shock of energy prices, not by overheated internal demand. Additionally, the likelihood of a further escalation in conflict intensity has decreased, with oil prices generally maintaining a volatile downtrend, and the peak of oil price shocks directly related to the war has passed.

However, Xu Yaxin pointed out that the inflation data has a structurally divergent impact on commodities. Energy-related varieties benefit from the high growth in energy CPI, with the inflation-pricing logic for oil strengthening and possessing anti-fall properties. Industrial metals like copper and aluminum are suppressed by high interest rates and face weak terminal manufacturing demand, operating under pressure. Precious metals gold and silver present a short-term bullish, medium-term neutral-to-bearish pattern.

"From a short-term perspective, the cooling of core CPI weakens expectations for aggressive Fed rate hikes, leading to a slight decline in US real bond yields and a weaker US dollar. After breaking below key levels, gold and silver are about to enter a window for a corrective rebound. From a medium-term perspective, the overall CPI year-on-year increase breaking above 4% means inflation is far from the 2% policy target. The core logic of high interest rates being maintained for longer remains unchanged. Any rebound would merely be a technical correction, unlikely to reverse the medium-term trend of seeking lower levels. Silver, possessing both financial and industrial attributes, has significantly higher volatility elasticity than gold, potentially rebounding more but also having stronger downward momentum. Weak demand from the photovoltaic and electronics industries can amplify silver's price declines," Xu Yaxin stated.

So, can sustained gold purchases by global central banks halt the decline in gold prices? Regarding this, Yuan Zheng stated that in recent years, continuous gold buying by central banks has been one of the most important structural bullish factors for the current gold price, but this cannot reverse the downtrend driven by shifting rate expectations and liquidity selling pressure in the short term. In short-term pricing games, global central banks do not yet possess the ability to dominate the current direction of gold prices, acting more as price takers. However, in the medium-to-long-term allocation logic, central bank gold buying provides a foundational, different-from-traditional-cycle support for gold prices.

Xu Yaxin also noted that sustained central bank gold buying can only provide a floor, not reverse the current downtrend in gold prices. In the first quarter of 2026, global central banks were net buyers of 244 tons of gold, with the strategy of "buying more as prices fall" becoming a normalized strategic allocation behavior for central banks. However, central bank gold purchases are long-term reserve actions, not involved in short-term price speculation. They can only lock in the depth of potential price declines, not prevent periodic falls.

"The core contradiction lies in the fact that short-term precious metals pricing is dominated by US real bond yields, the US dollar, and speculative capital. The volume of central bank purchases can only offset long-term selling pressure, hardly countering the short-term selling pressure from continuous ETF outflows and large-scale unwinding of speculative long positions on COMEX. Only when gold prices fall to the lower range where central banks concentrate their purchases will this buying behavior form strong support, slowing the pace of decline, rather than directly reversing the downtrend," Xu Yaxin stated.

Focus on Walsh's Debut

Notably, according to past patterns, whenever Middle East geopolitical tensions rise, international gold prices tend to increase. However, this year, Middle East geopolitical conflicts have ceased to push gold prices higher. Regarding this, Xu Yaxin explained that reverse interest rate transmission has become the new core logic. The traditional logic of "geopolitical risk aversion benefiting gold" has become ineffective. The new transmission chain is: Middle East conflict → rising oil prices → rising overall CPI → markets bet on the Fed maintaining high rates, or even restarting hikes → pushing US bond yields higher → funds sell gold/silver and shift to US dollar safe-haven assets.

"This round of Middle East confrontation continues to push energy inflation higher, instead strengthening the Fed's tightening stance, making the US dollar and US bonds the preferred short-term safe-haven assets. Combined with the fact that geopolitical risks were already priced in earlier, escalation of conflict triggered concentrated profit-taking under the 'buy the rumor, sell the news' dynamic. Multiple factors together created the anomalous situation of geopolitical tensions heating up while gold prices fell simultaneously. Only when conflict spreads to global oil transport arteries, triggering a comprehensive market liquidity panic, will the traditional safe-haven logic stage a temporary return," Xu Yaxin stated.

It is worth noting that after the release of the May CPI data, CME interest rate futures indicate a probability exceeding 98% that the Fed will keep rates unchanged at the June 17th meeting. The implied probability of at least one rate hike within the year has risen to around 50%, with December being the most likely window for a hike. Regarding this, Xu Yaxin noted clear divergences among Wall Street investment banks' views. Goldman Sachs raised the probability of a year-end hike to 20%, sticking to its baseline judgment of no rate cuts this year. Morgan Stanley believes persistent energy inflation makes a 25 basis point hike in September highly likely. Citigroup judges that with core inflation continuing to fall, a rate hike this year is unnecessary. Overall, market pricing has fully digested expectations of "high rates being maintained for a long time," and the medium-term pressure on gold and silver remains unchanged.

"Based on the current fundamentals, the probability of a Fed rate hike this year has risen from almost zero to significantly present, but the probability of immediate action at the June meeting is extremely low. The unexpected slowdown in core CPI month-on-month, the retreat in gasoline prices, and the need to observe AI-driven inflation pressures give the Fed room to continue waiting," Yuan Zheng stated.

Yuan Zheng indicated that the June meeting is highly likely to feature unchanged rates with a hawkish-leaning stance, a characteristic of a "hawkish dove." Judging from Walsh's previous statements, his style leans more towards proactive "leaning against the wind" – advocating that the Fed should not be swayed by short-term data noise but should make autonomous decisions based on longer-term economic narratives. The market's most pressing concern is how Walsh views the persistent risk of inflation above target and how he will subsequently implement monetary policy (the policy mix of rate cuts and balance sheet reduction).

Xu Yaxin also stated that on June 17th, new Fed Chair Walsh will preside over his first FOMC meeting. The market expects no adjustment to the benchmark rate, but policy guidance will fully shift towards tightening. It is anticipated that three key signals will be released: First, the policy statement will remove dovish phrases like "moderate rate cuts within the year," replacing them with neutral-to-hawkish language about rising inflation risks and retaining space for further hikes.

"Second, the dot plot will significantly raise rate expectations, removing expectations for cuts this year, with nearly half the members indicating a need for a 25 basis point hike by year-end. Finally, Walsh's press conference will verbally reinforce the Fed's anti-inflation credibility, clearly stating that policy will not be relaxed prematurely, weakening market fantasies of rate cuts. The core risk of this meeting lies in the dot plot turning hawkish. Once the interest rate center is raised, US bond yields and the dollar will strengthen again, quickly ending any rebound in gold and silver and initiating a new round of bottom-seeking," Xu Yaxin stated.

What Comes Next?

As gold prices continue to fall, institutional funds are steadily flowing out of the gold market. When will funds return? Regarding this, Yuan Zheng stated that the market has already fully digested Fed rate hike expectations, leaving limited room for further rises in real interest rates. Gold prices are now approaching the key technical support level around $4,000 per ounce. The Chinese central bank has increased its gold holdings for the 19th consecutive month, solidifying support for global gold demand. Walsh's FOMC meeting debut on June 17th may release clearer monetary policy signals.

"The timing of fund return depends on the precise resonance of three variables – whether Walsh's press conference releases dovish signals, the actual transit status of the Strait of Hormuz, and whether subsequent US macroeconomic data (non-farm payrolls, CPI) shows signs of marginal weakening. The earlier these three resonate, the faster funds will return. If they remain in a prolonged tug-of-war, gold prices will fluctuate repeatedly within the $4,300–$4,600 per ounce range, with funds exhibiting high-frequency switching characteristics," Yuan Zheng stated.

Regarding the subsequent trend of gold prices, Xu Yaxin stated that from a technical perspective, gold prices have broken below the annual moving average and all medium-term moving averages, with the RSI indicator remaining in oversold territory for an extended period. Silver's decline is more pronounced, with a solid bearish trend on the weekly chart, and weak industrial demand further amplifying its downside. In terms of downside space, the core strong support for gold futures is located in the $4,000–$4,100 per ounce range, which is the price zone where central banks concentrated their purchases. The overall remaining downside is only 5%–7%. The support range for silver futures is $60–$62 per ounce, with a maximum downside of about 10%. Normalized central bank gold buying fortifies the market bottom, eliminating the risk of a crash-like decline for precious metals.

So, when will gold prices bottom? Regarding this, Xu Yaxin stated that in the short term, after the June meeting concludes and market bearish factors are fully digested, gold prices are expected to build a temporary minor bottom. The medium-to-long-term bottom is highly likely to appear in the third quarter. By then, US economic data may show signs of recession, Fed rate hike expectations will gradually cool, institutional funds may flow back into the precious metals sector, and combined with central bank buying providing a floor, gold and silver are expected to end their decline and start a new medium-term recovery phase.

"Overall, after the May CPI data landed, the precious metals market has identified a short-term adjustment low, and prices are expected to initiate a rebound based on that level. However, this rebound does not break the core macro framework of the Fed maintaining high rates for a long time. After the rebound ends, the first meeting chaired by Walsh on June 17th will become the core risk node. Once the dot plot releases hawkish signals, it will pressure gold and silver prices again. From a medium-term perspective, central bank gold buying effectively locks in the downside for gold prices, and this round of deep technical adjustment is nearing its end. Investors should avoid blindly chasing the short side and can wait for the fundamental turning point in the third quarter to emerge, then gradually build positions in gold and silver for medium-to-long-term allocation," Xu Yaxin stated.

For ordinary investors, Yuan Zheng stated that before short-term economic data and monetary policy direction become clear, the most rational investment strategy is to stay on the sidelines, waiting for clear signals of a decline in real interest rates before building positions in batches. Avoid blindly bottom-fishing before the bottom is confirmed. Currently, bulls and bears are fiercely contesting around key support levels. Once this support level is lost, it will severely damage bullish market sentiment. Without new positive drivers, it will be difficult for gold and silver to return to an upward channel in the short term.