Gold prices have always been a hot topic for investors and market watchers alike. This week, they dipped slightly, continuing a downward trend driven by the Federal Reserve’s recent hawkish stance. Spot gold dropped 0.1% to $2,618.31 per ounce, while gold futures slipped 0.5% to $2,632.09.

After last week’s 1% decline, the precious metal remains under pressure as economic forces shape its trajectory.

So, what is causing this slide in gold prices, and what should you know if you are keeping an eye on the market? Let’s break it down.

Why Are Gold Prices Falling?

Gold prices are sensitive to interest rates, and the Federal Reserve’s signals are a major influencer. Last week, the Fed hinted at fewer rate cuts in 2025 due to persistently high inflation. This news strengthened the U.S. dollar, which often has an inverse relationship with gold.

gold prices — Michael / Pexels / A stronger dollar makes gold pricier for buyers using other currencies, reducing demand. And that is what is happening right now!

Adding to the downward pressure, markets are now predicting the first rate cut in June 2025, with only two reductions expected for the year. This hawkish approach drives investors toward interest-bearing assets like bonds, as holding gold – which doesn’t earn interest – becomes less appealing.

The Role of Inflation is Inevitable

Inflation is another key player when it comes to gold prices. On Friday, the US released its PCE price index data, the Fed’s preferred inflation gauge. While November’s 0.1% increase was slower than October’s 0.2%, core inflation remained stubbornly high at 2.8%.

This is well above the Fed’s 2% target, signaling that inflation is not going away anytime soon.

When inflation runs high, central banks often raise interest rates to cool it down. Higher rates mean higher yields on bonds and savings accounts, pulling investors away from gold.

So, it is a classic case of opportunity cost. Why hold gold when you can earn more elsewhere?

Gold’s One-Month Low: What Happened?

Gold prices hit a one-month low last Wednesday as markets adjusted their expectations for rate cuts. The yellow metal’s slip came after the Fed reiterated its commitment to fighting inflation, reinforcing the belief that interest rates would stay elevated for longer.

This sentiment pushed the US dollar to a near-two-year high, further weighing on gold.

RDNE / Pexels / The pressure on gold prices is not just about the Fed’s decisions. It is also about the broader economic environment.

Uncertainty around inflation and monetary policy creates a tricky landscape for gold, which typically thrives during periods of instability.

How the U.S. Dollar Impacts Gold Prices?

The U.S. dollar’s strength is a major factor in the recent decline of gold prices. On Monday, the dollar index rose 0.6%, hovering near the two-year high it hit last Friday. A strong dollar generally makes gold less attractive because it increases the cost of the metal for international buyers.

This dynamic creates a push-and-pull effect. When the dollar strengthens, gold prices often weaken. However, the reverse is also true. If the dollar begins to lose ground, gold could regain its luster.

Other Precious Metals Are Gaining Value

While gold prices are retreating, other precious metals are showing resilience. On Monday, platinum futures climbed 0.9% to $944.60 an ounce, and silver futures also rose 0.9% to $30.218 an ounce. These metals often move in tandem with gold but can sometimes react differently to economic shifts.

So, for investors, this divergence highlights the importance of diversification. While gold is a go-to safe haven, other metals can offer unique opportunities depending on the market environment.