Under the dual assault of a hawkish shift in U.S. Federal Reserve monetary policy expectations and a sudden escalation in Middle East geopolitical tensions, international gold prices have come under immense selling pressure recently. HSBC has consequently slashed its average gold price forecasts for 2026 and 2027, while President Donald Trump’s tough rhetoric against Iran has thrown both safe-haven and risk assets into turmoil.
According to the latest market data, HSBC lowered its 2026 average gold price forecast to $4,560 per ounce from a previous estimate of $4,864, and cut its 2027 average price forecast to $4,925 from $5,000. The bank projects gold will trade in a range of $3,800 to $4,700 per ounce for the remainder of 2026, with a year-end target around $4,750, and expects prices to recover to $5,025 by the end of 2027.
The significant pullback in gold prices is closely tied to the rapidly heating situation in the Middle East. The U.S. military confirmed it launched fresh airstrikes against Iran, which retaliated with attacks on U.S. military positions in Kuwait and Bahrain. Trump further escalated tensions by declaring that the temporary ceasefire agreement and memorandum of understanding (MoU) with Iran were effectively “over,” threatening to strike Iran’s civilian infrastructure, including power plants and desalination facilities, and even vowing to seize Iran’s key oil export hub, Kharg Island.
This series of conflicts caused international oil prices to spike more than 5% in a single day, sparking intense concerns about resurgent inflation. David Meger, director of metals trading at High Ridge, noted that with U.S.-Iran tensions rising and the potential collapse of the ceasefire, virtually all risk assets are facing selling pressure, and gold is no exception. While gold is traditionally viewed as a hedge against inflation, its lack of yield makes it less attractive in a high-interest-rate environment, as the opportunity cost of holding the metal increases significantly.
Market expectations regarding the Fed’s monetary policy path represent the other core factor suppressing gold prices. HSBC stated that a shift in market perceptions of U.S. monetary policy, and the resulting impact on the U.S. dollar, is one of the key reasons for further selling and the continued decline in gold prices. According to the CME FedWatch Tool, traders now see the probability of a Fed rate hike in September climbing to between roughly 63% and 69%, up from 62% the previous day, indicating the market is gradually pricing in a more aggressive tightening policy.
Against this macroeconomic backdrop, precious metals markets fell across the board. Spot gold touched its lowest level since July 1 during Wednesday’s trading session, hitting $4,067.39 per ounce, a daily decline of 0.9%. Gold futures for August delivery settled 1.8% lower at $4,082.40 per ounce. Other precious metals also suffered heavy losses: spot silver tumbled 2.9% to $58.25 per ounce; spot platinum dropped 3.6% to $1,580.92; and spot palladium plunged the most, down 4.5% to $1,219.84 per ounce.
Notably, HSBC is not alone in its bearish stance. Bank of America earlier also cut its 2026 gold price forecast by 14% to $4,360 per ounce, similarly citing a more hawkish Fed. However, Bank of America also believes that once this tightening cycle concludes, gold prices could still return to the $5,000 mark.
Despite the heavy short-term pressure, HSBC believes the room for further gold price declines may be limited. The bank noted that the market has already largely priced in a stronger U.S. dollar and a higher-for-longer interest rate environment. Furthermore, the fundamental factors that supported gold prices before the Middle East conflict erupted—including fiscal deficit concerns, economic uncertainty, and heavy sovereign debt burdens—remain in place.
Looking at fund flows, HSBC pointed out that gold exchange-traded funds (ETFs) experienced significant outflows in the first half of the year, a situation that could partially reverse in the second half. Meanwhile, the wave of central bank gold buying that has been a major force driving prices higher in recent years is now showing signs of cooling. However, from a long-term perspective, the demand from central banks globally to diversify their foreign exchange reserves will continue to provide support for gold prices.
Nikos Tzabouras, a senior market analyst at Tradu.com, observed that gold is attempting to form a near-term bottom as the U.S. dollar’s rally weakens. However, he warned that in an environment where interest rates are set to remain elevated for an extended period, non-yielding assets like gold will continue to face headwinds, and prices could still move lower.
Regarding geopolitical factors, HSBC believes that while the Middle East conflict may continue to drive gold prices lower, it does not expect a sell-off triggered solely by the Iran situation to last very long. Market reports also indicated that Trump said Iran has proactively reached out to the U.S. seeking a deal, which has somewhat eased concerns about a further deterioration in the Middle East.
Looking ahead, investors will closely monitor U.S. inflation data due next week, as well as Federal Reserve Chair Kevin Warsh’s congressional testimony, for further clues on the direction of monetary policy. Analysts broadly believe that the Fed meeting minutes and the subsequent developments in the U.S.-Iran conflict will be key drivers of gold’s next major move.