Gold Falls Below $4,400 for First Time in Two Months. Institutions Lower Gold Price Forecasts as Market Expects PCE to Approach 4%

TradingKey - During the Asian trading session on May 28, spot gold briefly fell below $4,400, hitting a low of $4,396.91, its lowest level since March 27. Gold futures also declined, with U.S. gold futures for August delivery dropping to $4,431 on May 27.

On the news front, although reports previously suggested a draft agreement between the U.S. and Iran had been largely reached, subsequent progress has not been smooth. Iranian media disclosed a draft U.S.-Iran agreement, claiming the U.S. would lift the maritime blockade in exchange for navigation through the Strait of Hormuz, which the White House quickly denied.

The White House official rapid response account "Rapid Response 47" posted that the report from Iranian media is false, the memorandum of understanding they released is a total fabrication, and no one should believe the content disseminated by Iranian state media.

U.S. Secretary of State Rubio stated that the U.S. prefers to resolve issues through negotiation, but if a "good deal" cannot be reached, it will respond in "another way."

Although gold is a traditional safe-haven asset, it has performed poorly since the outbreak of the U.S.-Iran conflict. Disruptions in the Strait of Hormuz have caused crude oil and natural gas prices to surge, with energy price impacts transmitting to global inflation. The market is currently re-pricing inflation and interest rate paths.

This Thursday, the Bureau of Economic Analysis will release the April PCE inflation report. The market expects both headline and core inflation rates for April to rise year-on-year. Driven by the dual pressures of energy costs and price increases, core inflation metrics are expected to hit new highs since 2023. Financial data firm FactSet predicts that the April PCE price index will rise 3.9% year-on-year, while the core PCE index, excluding food and energy prices, will rise 3.3% year-on-year.

Some traders now not only expect that it will be difficult for the Federal Reserve to cut interest rates in the short term, but even believe a rate hike could occur within the year. Data from the CME FedWatch Tool shows that the futures market currently estimates the probability of a Fed rate hike by December this year at nearly 50%.

Market bets on the Fed's policy path; Image source: CME FedWatch

Due to concerns over the Fed's policy path, several Wall Street investment banks have lowered their gold price targets. Although UBS remains long-term bullish, it has lowered its medium-term target level, considering the continued pressure from interest rates and exchange rate environments on gold, cutting its year-end 2026 price forecast from $5,900/oz to $5,500/oz. Analysts Dominic Schnider and Wayne Gordon noted in the report that as real interest rates remain high, the market has reconsidered the opportunity cost of holding gold, leading capital to shift from gold to other yield-bearing assets.

In addition, Morgan Stanley lowered its gold price target for the second half of 2026 to $5,200, JPMorgan lowered its 2026 average gold price forecast to $5,243/oz, and Citi expects gold prices to reach $4,300/oz within the next three months.