Gold prices have reached a new low for 2026, declining by 6.3% over the week.

Market expectations that the Federal Reserve will keep interest rates elevated for an extended period continue to weigh on the precious metal's performance.

JPMorgan Chase notes that investors are exiting trades that bet on currency devaluation, including those linked to gold and Bitcoin.

Despite rising inflation fears, investors are offloading the previously popular gold assets. Growing concerns that a high-inflation environment may force the Fed to raise rates later this year, or at least maintain current high levels, drove international gold prices to a six-month low on Thursday.

Multiple factors are exerting pressure on gold concurrently.

The August gold futures contract hit a low of $4,046.20 on Thursday, marking its lowest point since last November. Gold has fallen 6.3% for the week, on track for a second consecutive weekly decline and potentially its worst week since mid-March, when prices plunged 9.62%.

At the time of writing, gold was down 0.5% to $4,111.10.

Shift in Fed Policy Expectations

As a safe-haven asset, gold typically attracts capital during market turmoil and is seen as a hedge against inflation. However, it yields no interest, making it highly sensitive to expectations for long-term real interest rates.

The four-month-long conflict involving Iran has pushed up energy and various commodity prices, further intensifying inflationary pressures.

U.S. consumer inflation accelerated in May at the fastest pace in three years, primarily driven by surging energy prices. Coupled with a much stronger-than-expected May jobs report, the market widely believes the Fed may need to hike rates by year-end to curb price increases.

The upcoming meeting will be the first under new Fed Chair Kevin Warsh. The market expects the benchmark federal funds rate to remain unchanged in the 3.50%-3.75% range. A Reuters poll shows most economists now judge that rates will not be adjusted this year, whereas at the start of the year, many had anticipated multiple rate cuts.

However, traders are more pessimistic. Data from the CME FedWatch Tool indicates current market pricing reflects a 67% probability of a Fed rate hike by December. If rate hikes succeed in curbing inflation, the appeal of dollar-denominated assets like U.S. Treasuries would increase significantly, drawing demand away from gold.

Technical Breakdown and Weakness

From a technical chart perspective, gold's overall structure appears weak.

The recent decline saw gold break below its 200-day moving average for the first time since September 2023, a signal Citigroup views as a significant bearish development. Since the escalation of Middle East conflicts in March, Citi has maintained a cautious short-term outlook on gold, partly due to the rise in energy costs from disruptions in the Strait of Hormuz.

Nevertheless, Citi remains bullish on gold in the long term. The bank's analysts stated, "Despite strong near-term downward momentum, we expect gold to eventually rebound once tensions in the Strait of Hormuz ease."

JPMorgan Chase holds a more pessimistic view. The bank reports that both retail and institutional investors are exiting so-called "currency debasement trades," which had bet on a continued weakening of the U.S. dollar.

JPMorgan cites supporting evidence: persistent outflows from gold ETFs and a significant reduction in long futures positions. This capital exodus is also attributed to market concerns over U.S. government debt levels, inflation, and geopolitical risks.