Gold eases 1.3% as soft CPI fails to sway Fed's hawkish stance

Gold slipped 1.3% to settle at $4,120.67 an ounce last week as a softer June CPI print proved insufficient to shift the Federal Reserve's hawkish monetary policy stance.

"The softer-than-expected CPI print undercut the Fed's recent hawkish leanings, sending the dollar lower as markets pared back Fed expectations," said Uto Shinohara, senior investment strategist at Mesirow Currency Management. "The inflation data predates the latest rise in geopolitical tensions, higher oil prices, energy supply risks and Trump's threat of a 20% protection fee, meaning the softer headline print does not yet capture these developments."

The consumer price index fell 0.4% in June, bringing the annual rate to 3.5% — below consensus estimates. Market-implied odds of a July rate hike collapsed to 12% from 42% a day earlier, according to CME FedWatch, though the probability of a hike by year-end remained elevated at 80%. The dollar index slipped 0.3% to 100.98, while the 10-year Treasury yield held near 4.58%.

The data predates the latest escalation in the Middle East, where the Strait of Hormuz closure has pushed crude toward $90 a barrel, threatening to reignite inflation expectations in coming months. Federal Reserve Chair Kevin Warsh, delivering his semiannual testimony to Congress, offered no reprieve, saying anyone expecting the Fed to go soft on inflation would be "disappointed." The next catalyst for gold comes Tuesday when June CPI lands alongside Warsh's House testimony — a single session that may determine whether the rate trade returns or the selloff deepens.

Oil's Shadow Looms Over the Rate Path

The Strait of Hormuz disruption adds a complicating variable that no single CPI print can resolve. Every dollar crude gains while the waterway remains restricted resets inflation expectations forward, regardless of what last month's data showed. Federal Reserve Governor Christopher Waller said Monday that rates may need to rise "in the near term" if inflation remains well above the 2% target. "Without a sustained rise in global energy prices over the coming weeks and months, the US economy is now on a modestly-disinflationary trajectory that should keep US yields and the dollar capped," said Karl Schamotta, chief market strategist at Corpay.

Gold's Technical Floor Under Pressure

Spot gold is testing the 50% Fibonacci retracement level at $4,069.54 from the November 2024-to-January 2026 rally that peaked at $5,602.23. The metal briefly touched $3,942.10 earlier this month before bouncing, but remains below its 52-week moving average of $4,286.02 — a level that has capped upside momentum. A break below $3,942.10 would negate the recent reversal pattern and open the door toward the 61.8% retracement at $3,707.82, according to technical analysis by James Hyerczyk.

This article is for informational purposes only and does not constitute investment advice.