US Fed's 'Inflation Problem' Sees Gold Sink, Silver Tests 6-Month Low
GOLD PRICES sank and silver tested 6-month lows on Tuesday before rallying as betting eased that the Federal Reserve will begin hiking US interest rates as soon as next month to fight inflation.
Asian stock markets lost over 2% from Monday's fresh all-time highs while European bourses also fell hard and US tech stocks tumbled again at the New York opening, with Elon Musk's $2.0 trillion SpaceX (Nasdaq: SPCX) holding above its IPO price of last Monday but losing 1/3rd from the following day's peak.
"[The USA has] an inflation problem that's well above the [2%] target and has been going the wrong way," says Austan Goolsbee, President of the Chicago Fed and a non-voting FOMC member in 2026.
Silver prices today fell through $62 per troy ounce and gold bullion dropped below $4100 as traders in CME Fed Funds futures trimmed their 'hawkish' outlook but continued to put a 1-in-3 shot on the US central bank raising the cost of borrowing at July's meeting, with the consensus bet for December now forecasting rates above 4.00% per annum.
That's a whole percentage point higher than the market's end-year forecast was on the last day of February, eve of the US-Israel war on Iran, when gold set the first of only 2 full trading weeks above $5000 per ounce.
"What is the evidence that this [inflation] is going to be temporary?" Goolsbee continues in his interview with NPR's Marketplace.
"We could get some resolution in the Middle East, and maybe that inflation [from oil prices] would go away. [But] the fact that we've seen [inflation] in services, which historically is pretty persistent, is a little more disturbing."
Oil prices fell to fresh 16-week lows on Tuesday, erasing all but $6 per barrel of Brent crude's previous $32 surge to the Iran war's 4-year highs on ICE futures contracts, after US President Trump today said that he's ended the naval blockade of the Strait of Hormuz, where tanker traffic has risen towards 1/5th of pre-war levels.
But Washington and Tehran continued to argue over whether Iran has agreed to let United Nations inspections of its nuclear research facilities, and there will be "no ceasefire under any circumstances" in Lebanon − a key part of the US-Iran agreement − said Israel's right-wing security minister Itamar Ben-Gvir.
Today's preliminary data from the S&P data agency's PMI surveys for June meantime said factory activity continues to grow in Japan, the Eurozone, UK and USA, but the services sector is now shrinking across the rich Western economies.
"Stagflationary shocks [with inflation high and growth low] are the nightmare scenario for any central bank," says the Chicago Fed's Goolsbee.
Back in bullion, "Hitting our $6000/oz target looks unlikely for now," says analyst Michael Widmer at US financial giant Bank of America of his previous end-2026 gold price forecast.
With gold already 25% off end-January's gold peak near $5600, struck the day before President Trump named Kevin Warsh as his pick for the Fed's chairman ship, "The central question is not whether a pullback in gold will occur," say mining-stock advisory and fund managers Goehring & Rozencwajg, "but how deep and prolonged that pullback becomes."
"Rising energy prices and higher yields more than offset any safe-haven bid" for gold during the Iran war, says a note from the private banking division of global financial services firm and London bullion clearer HSBC.
"Looking ahead, US yields remain the dominant driver of the gold price."
Inflation-protected US Treasury bonds today steadied in price from Monday's late plunge, holding the real yield offered to buyers of 10-year TIPS around 2.26%, the highest since before Trump returned to the White House at New Year 2025.
Email us