Gold and Silver Rally on Doubts Over US Inflation and Fed Rate Hikes

GOLD and SILVER PRICES rallied further on Friday from this week's 7-month lows as the Dollar dropped amid growing doubts that the Federal Reserve under new chair Kevin Warsh will raise US interest rates any time soon despite rising headline inflation.

Bond prices rose again, pushing down the annual yield offered by 10-year US Treasury debt to a 7-week low beneath 4.35%.

The Dollar meanwhile fell further from Wednesday's 14-month high on its DXY index after data for May showed the deepest monthly US trade deficit in goods since the rush to stockpile preceding President Trump's "Liberation Day" tariffs in April last year, down at $105 billion.

"The recent rise in real yields [after accounting for inflation] and the US Dollar's strength raise the opportunity cost of holding gold," says new analysis from Swiss bank and London bullion clearer UBS.

But "the Federal Reserve is unlikely to raise rates in the near term," UBS goes on, forecasting a rally in gold to $5200 over the next 12 months because "we expect inflation to moderate in the coming months" − most especially on the "trimmed mean PCE" measure favoured by new Fed chair Warsh.

Core PCE inflation, which excludes fuel and food prices as 'volatile' items, rose to 3.4% in May, new data said Thursday, the fastest pace since October 2023.

With the Fed officially targeting 2.0% on that measure, core PCE inflation hasn't fallen to or below target for 63 months, the longest stretch since the near 3-decade run of strong inflation ending in 1995.

But the trimmed mean of the PCE basket − which excludes 'outlier' items − rose only to a 4-month high of 2.4%, continuing the underlying downtrend which has now seen it fall from 1 year earlier for 36 months in a row.

"The higher inflation and bond yields move, the greater the downwards pressure" on gold and "silver in particular" says a note from Australian bank Macquarie.

Losing 2.0% for the week at London's 3pm bullion auction on Friday, the spot price of gold then extended its rally from Wednesday's drop below $4000 per troy ounce to peak at $4092.

Silver meanwhile fixed 9.8% lower for the week at London's midday auction, but rose to regain almost $4 per ounce from its dips below $55.

Betting on Fed interest rates held little changed after easing on Thursday's mixed PCE inflation as well as GDP data, putting the market-based forecast for year-end rates at 3.94%.

That's the lowest such forecast since Tuesday last week, eve of Kevin Warsh leading his first meeting in charge of the US central bank, when he made what analysts and journalists called "hawkish" Fed comments on inflation and rates − despite leaving rates unchanged − while his colleagues raised their average projection for year-end rates to 3.8%.

With gold down for the 4th week running and silver now down for 7, global stock markets fell for the 10th week in 25 so far in 2026 as AI chipmakers in South Korea pulled the Kospi Index 6.0% lower from last Friday, and China's CPO "standing in the light" data-centre hardware manufacturers sank 5.6% from yesterday's fresh all-time high.

"We see scope for renewed US Dollar weakness," says UBS, adding that "Robust central bank demand [also] remains a critical pillar of support" for gold prices.

"The recent fall in oil prices may help [boost] renewed, consistent central bank buying," says economics professor and chief advisor to giant German-based insurers Allianz Mohamed El-Erian.

"It will moderate both the direct and indirect causes of central banks having to draw on their international reserves" such as Turkey did in response to March's Iran war crisis, spurring record central-bank gold selling.