Gold prices moved lower on Monday after giving up early gains, as investors reassessed the outlook for U.S. interest rates following hawkish comments from Federal Reserve Chair Kevin Warsh.
Higher oil prices also added to inflation concerns. However, broader worries about government debt, currency weakness and fiscal policy continued to provide some support for bullion.
Despite Friday’s sharp decline, gold remained roughly 10% higher in August and was on track for its strongest monthly performance since January.
Gold Prices Fall as Fed Outlook Turns Hawkish
At 01:49 ET, XAU/USD fell 0.4% to $4,436.57 an ounce, while gold futures dropped about 1% to $4,486.19.
Silver prices moved slightly higher, with XAG/USD gaining 0.2% to $66.53 an ounce.
Platinum declined 0.8% to $1,809.07, while the U.S. Dollar Index slipped 0.1% to around 99.62.
Warsh Comments Revive Rate Hike Expectations
Gold came under heavy pressure on Friday after Warsh said the Federal Reserve still had work to do to return inflation to its 2% target.
Bullion fell 3.2% during Friday’s session, marking its largest one-day decline since early June.
His comments prompted investors to increase expectations for another U.S. interest rate hike.
Markets were pricing in roughly a 57% probability of a September rate increase, according to CME FedWatch.
Higher Interest Rates Pressure Gold
Rising rate expectations are generally negative for gold because the precious metal does not generate interest or income.
When government bond yields increase, interest-bearing assets can become more attractive compared with bullion.
A stronger U.S. dollar can also weigh on gold prices because it makes the metal more expensive for investors using other currencies.
These factors contributed to the sharp reversal in gold following Warsh’s latest inflation comments.
ANZ Sees Limited Downside for Bullion
ANZ analysts said the recent decline reflected a clear shift in expectations for U.S. monetary policy.
They noted that Warsh’s inflation warning raised expectations for additional rate hikes later in the year and reduced short-term demand for gold.
However, ANZ still expects downside risks to remain relatively contained.
The bank believes concerns surrounding government debt, currency depreciation and declining purchasing power could continue attracting investors to bullion.
Rising Oil Prices Add Inflation Concerns
Energy markets are also adding another source of pressure.
Brent crude climbed to around $89.38 per barrel, while U.S. crude rose to approximately $84.50.
The increase followed U.S. strikes on Iranian launchers on Larak Island on Sunday.
Iran later reportedly attacked U.S. forces stationed in Jordan, increasing concerns that the conflict could escalate further and keep energy prices elevated.
Higher energy costs could contribute to stronger inflation and reinforce expectations for tighter monetary policy.
Treasury Intervention Supports Gold’s Debasement Theme
Gold’s strong August rally received additional support earlier in the month after the U.S. Treasury unexpectedly increased purchases of longer-dated government bonds.
The move pushed Treasury yields lower and weakened the U.S. dollar.
It also revived concerns over rising government debt and the possibility that policymakers could attempt to manage borrowing costs through increased intervention.
These concerns brought the so-called debasement trade back into focus.
Gold Remains a Hedge Against Fiscal Risks
The debasement theme played a major role in gold’s roughly 65% rally during 2025.
Investors increasingly viewed bullion as a hedge against widening budget deficits, currency depreciation and the erosion of purchasing power.
ANZ believes the latest hawkish shift in monetary policy creates a short-term risk to this trend.
However, the underlying fiscal and currency concerns supporting gold demand remain largely unchanged.
Gold Still Holds Strong August Gains
Gold had recovered strongly from its late-June low near $3,942 per ounce before Friday’s selloff.
Renewed demand from central banks and investors helped push the metal comfortably above the $4,000 level during the summer rally.
Although higher rate expectations have created near-term pressure, gold remains significantly higher for August.
U.S. Jobs and Inflation Data in Focus
Investors will now turn their attention to upcoming U.S. employment and inflation figures.
Stronger-than-expected data could reinforce expectations for a September Federal Reserve rate hike and place additional pressure on gold.
Weaker economic data, however, could reduce those expectations and potentially provide fresh support for bullion.
For now, gold prices remain caught between a more hawkish Federal Reserve outlook and longer-term concerns surrounding government debt, inflation and currency depreciation.
