Should You Buy the Dip as Gold Falls Below $4,100? May CPI Breaking 4% Still Unlikely to Trigger Rate Hike? 2026 Gold Price Trend Forecast

TradingKey - During Thursday's Asian session, gold fell below $4,100, hitting a low of $4,023 and marking its lowest level since November 2025; gold futures dropped as low as $4,046 during the day. Compared to the all-time high of nearly $5,600 set in late January, spot gold prices have fallen more than 26% cumulatively, erasing all year-to-date gains.

On the news front, the U.S. May CPI released Wednesday rose 4.2% year-on-year, the largest increase since April 2023. Although May's core CPI rose just 0.2% month-on-month, falling short of market expectations, options market data shows that traders still maintain expectations for a Federal Reserve rate hike this year. Spot gold closed down more than 4% on Wednesday.

Gold Erases Year-to-Date Gains: Has a Bear Market Begun?

Chris Gaffney, President of Global Markets at EverBank, noted that gold's decline on Wednesday was primarily attributed to interest rates, as May U.S. CPI data reinforced market expectations for rate hikes. Gold is a non-yielding asset; when interest rates rise, the opportunity cost of holding gold increases, thus expectations for rate hikes dampen the market's incentive to increase gold holdings.

Although gold has long been viewed as a safe-haven asset, it has not gained significant upward momentum since the outbreak of the U.S.-Iran war. MarketWatch columnist Mark Hulbert explained that there is actually no stable relationship between geopolitical risk and gold prices. Even when the market experiences severe volatility, gold's risk resistance is often quite poor; in recent months, multiple sharp spikes in the VIX index have coincided with sell-offs in gold. Industry insiders explain that because gold is one of the most liquid assets globally and can be quickly converted to cash at any time, it is often a preferred choice for investors to liquidate when other risk assets crash. This explains why gold has currently erased all of its year-to-date gains.

Gold Prices Fall Below $4,100, but Fed Policy Direction Remains a Mystery

The trigger for this round of gold's decline was the CPI data fueling market expectations for rate hikes; however, several Wall Street firms believe that this data is not yet sufficient to trigger a hike. While headline CPI exceeded expectations, core CPI continued to grow moderately, making the Fed's future policy path difficult to determine.

Nick Timiraos, the reporter known as the "Fed whisperer," commented that Fed officials cannot draw any definitive conclusions based solely on the May CPI report. In other words, the report is neither sufficient to support a rate cut nor to immediately drive a rate hike, and maintaining a wait-and-see stance remains the most reasonable policy choice for the Fed.

Regarding the data, he explained that core CPI rose 0.21% month-over-month, which was lower than forecasters' expectations but not enough to convince the Fed that inflation is under control. On the other hand, while rising energy prices have driven headline inflation to an annualized growth rate of over 8% in the past three months, economic growth has not been crushed by high inflation; the AI investment boom, the wealth effect from the stock market, and robust demand have all enabled consumers to absorb the costs passed on by businesses.

Many Wall Street investment banks hold similar views. Olu Sonola, Fitch's chief US economist, stated that while headline inflation is overheating and still rising, core inflation remains relatively controlled, providing room for the Fed to continue holding steady. The real determinants of policy direction will be the core inflation and inflation expectation data in the coming months.

Seema Shah, chief global strategist at Principal Asset Management, believes market pricing for further rate hikes may be too high. In fact, since a broad "second-round inflation effect" has not yet been seen, the Fed still has reason to remain patient.

With the Fed's policy path still uncertain, gold's drop below $4,100 may reflect a market overreaction.

Gold Price Forecast: Wall Street Investment Banks Turn Bearish

Recently, several investment banks have lowered their gold price forecasts. JPMorgan cut its 2026 average gold price forecast from $5,708 to $5,243; as early as late April, Morgan Stanley had already lowered its latest gold price target for the second half of 2026 to $5,200, significantly below its previous expectation of $5,700.

Citigroup's forecast is even lower, with the bank cutting its three-month gold price target from $4,300 to $4,000. Furthermore, Citi believes there is room for further downside in gold prices. In a research report released Monday, Citi analysts stated that if the Strait of Hormuz remains closed through the end of summer, gold prices could drop to $3,500 per ounce.