Gold Price Hits Annual Low as Fed Rate Hike Bets and Sticky Inflation Weigh on Bullion

Gold prices extended their decline on Tuesday, falling to their lowest level of the year as investors reacted to growing expectations that the U.S. Federal Reserve could raise interest rates again amid persistent inflationary pressures.

Spot gold dropped 1.3% to $3,965.51 per ounce by 21:47 ET (01:47 GMT), marking its weakest level since early November. Gold futures also declined 1.5% to $3,975.92 per ounce. The precious metal has now fallen 12.8% in June, putting it on track for its worst monthly performance since 2008 and a fourth consecutive month of losses.

The decline in gold prices was driven largely by a stronger U.S. dollar and increasing confidence that the Federal Reserve will deliver at least one more interest rate hike this year. During its June policy meeting, several Fed officials maintained a hawkish stance, reinforcing expectations that borrowing costs could remain elevated for longer.

Inflation concerns also continued to pressure bullion. Although energy prices eased following a U.S.-Iran peace agreement, investors remain cautious after renewed military tensions in the Middle East over the weekend. Meanwhile, artificial intelligence-related supply constraints have fueled fresh inflation worries.

Apple recently raised prices on several devices due to higher semiconductor costs, reflecting broader supply shortages caused by surging AI-related demand. Similar price increases by other electronics manufacturers have strengthened expectations that inflation could remain persistent.

Higher interest rates typically reduce the appeal of gold because the metal does not generate interest or yield, making it less attractive compared to income-producing assets.

Other precious metals also posted sharp losses. Spot silver fell 2% to $57.1090 per ounce, bringing its monthly decline to 24.2%. Spot platinum slipped 1.3% to $1,563.25 per ounce and was down nearly 19% for June.

With the Federal Reserve maintaining a hawkish outlook and inflation risks lingering, gold and other precious metals may continue to face downward pressure in the near term despite ongoing geopolitical uncertainty.