(Kitco News) - A fairly resilient economy, coupled with persistent inflation, has made higher interest rates in the second half of 2026 a foregone conclusion, which could weigh on gold prices in the near term; however, one market strategist suggests that lower prices could represent a long-term buying opportunity.
According to the CME FedWatch Tool, markets see a more than 90% chance that the Federal Reserve will raise interest rates by 25 basis points Wednesday afternoon. At the same time, markets see a nearly 80% chance of a second rate hike before the end of the year.
In his latest precious metals note, Alex Kuptsikevich, Chief Market Analyst at FxPro, said that gold prices could catch a bid Wednesday afternoon if the Federal Reserve’s projections meet these expectations.
“The base-case scenario for the interest rate futures market is a tightening of monetary policy and the FOMC’s forecast that it is prepared to do so again in 2026. This will stabilise the US dollar and is likely to suppress yields on long-term government bonds as fears subside that the Fed is losing control of the situation in the long term. Such a scenario is quite favourable for gold. If, however, the Committee forecasts three rate rises in its updated projections, the greenback will soar, whilst the precious metal will face a wave of sell-offs,” he said.
So far, the gold market is taking the threat of higher interest rates in stride, as prices have pushed back above an important near-term support level. Spot gold last traded at $4,334.80 an ounce, up 1% on the day.
Kuptsikevich added that the risk for the precious metal is that the U.S. central bank could tilt more hawkish than expected. He pointed out that gold could see a similar selloff if Federal Reserve Chair Kevin Warsh sticks to the same hawkish rhetoric he used in his speech at the annual Central Bank Symposium in Jackson Hole, Wyoming.
However, looking beyond the near-term volatility, Kuptsikevich said that gold’s medium- to long-term prospects remain positive. He added that everything depends on the U.S. dollar.
“Over the past three weeks, the strengthening of the dollar and rising yields on US Treasury bonds have weighed on the price of the non-interest-bearing precious metal. However, as soon as the greenback retreated, gold quickly launched a counter-attack,” he said.
Beyond the market’s knee-jerk reaction, Kuptsikevich noted that a rate hike might not necessarily be positive for the U.S. dollar, as it could create some geopolitical uncertainty. (Kitco Global Index shows how much of today's gold move is the dollar versus the gold market itself.)
“A rate hike is sure to provoke discontent in the White House, whose pressure on the Fed is fuelling the ‘debasement trade’. US fiscal problems have not gone away, and the Treasury’s attempts to intervene in the currency and debt markets are increasing demand for decentralised finance assets,” he said. “In such circumstances, a fall in gold prices in response to the Fed’s decision to begin a cycle of rate rises could create ideal conditions for buying the metal.”
See live precious metals prices for gold, silver, platinum and palladium — in USD, CAD and 12 more currencies.
