Gold’s June Rate Cut Hopes Vanish as Warsh Era Begins, Central Bank Buying Offers Floor

New Fed Chair Warsh triggers hawkish repricing: rate cut probability plunges to 8%. Gold falls 0.65% to $4,510, down 17.24% from peak. Waller hints at hike, yields surge.

The probability of a Federal Reserve rate cut at the June meeting has collapsed from 48% to under 8% in a single session, marking one of the most dramatic shifts in monetary policy expectations this year. The trigger was Kevin Warsh’s swearing-in as the new Fed chair on Friday, a move that immediately repriced the entire interest rate outlook for the world’s largest economy.

Gold felt the full force of the repricing. The precious metal closed Friday at $4,510.50 an ounce, down 0.65% on the day, and now sits 17.24% below its 52-week high of $5,450. The selloff accelerated as 30-year US Treasury yields surged to levels not seen since 2007, making non-yielding bullion painfully unattractive by comparison.

Fed Governor Christopher Waller reinforced the hawkish shift, dismissing the case for rate cuts and leaving the door open to a hike before year-end. The market took note. One-year inflation expectations jumped to 4.8%, a level that further erodes the argument for looser policy. For gold, the calculus is brutal: rising real interest rates and a strengthening dollar punish an asset that offers no income stream.

Geopolitics delivers a mixed signal

Normally, heightened geopolitical risk would provide a tailwind for gold. But the current environment is anything but normal. On one hand, progress in US-Iran talks has cooled risk premiums. A 14-point memorandum is in its final stages with a 50:50 chance of success, and Iran has allowed 35 ships through the Strait of Hormuz again, easing supply fears. That détente has pulled one prop from under gold.

On the other hand, the situation in Eastern Europe remains tense. Ukrainian President Zelensky warned of new Russian Oreshnik missiles with a range of up to 5,000 kilometres, and Sunday morning saw fresh airstrikes on Kyiv. The security impulse for gold persists, but it is being drowned out by the dollar’s strength and the higher opportunity cost of holding bullion.

The Iranian blockade of Hormuz has paradoxically hurt gold despite its inflationary impact. The resulting energy cost spike has actually reinforced the dollar, making gold more expensive for buyers outside the US. Since the mid-May high of $4,773, the metal has lost more than 6%.

Central banks step in, but bears remain in control

Central banks added 244 tonnes of gold in the first quarter, according to the latest data, providing a floor under prices. UBS maintains its year-end target of $5,600 an ounce, citing structural demand from reserve managers and portfolio diversification. But in the short term, the new Fed stance dominates.

XTB assigns a 55% probability to a continued bear scenario for the coming week, consistent with the weak momentum. Technically, the $4,450 level is emerging as a crucial support. A decisive break below that could open the door to further losses. The relative strength index stands at 49.8 – neutral but offering no clear directional cue.

The next major test comes Wednesday, when the Fed releases its preferred inflation gauge, the PCE deflator. A hot reading would likely send gold lower, while a softer print or any signs of diplomatic progress in the Middle East could spark a relief rally. For now, the market is caught between two forces – a hawkish Fed and central bank buying – and the bears have the upper hand.