Hawkish Warsh Hammers Barbarous Relic: Gold Crashes Back Below $4000 As Rate-Hike Odds Rise

Gold plunged back below $4,000 an ounce for the first time since November 2025 this morning, as a resurgent dollar and the prospect of higher interest rates bring bullion’s three-year bull market to a halt (now down 30% from its January highs).

The precious metal has posted double-digit gains for each of the last three years, more than doubling in price as central banks, money managers and retail investors all piled into the trade.

That rally ran out of steam in late January, shortly after the precious metal hit an all-time-high near $5,600 an ounce.

Chief among the factors that weighed on bullion’s performance was the outbreak of the US-Iran war.

Higher energy prices have fueled inflation and increased the likelihood of rate hikes, making bullion less attractive relative to yield-bearing assets like Treasuries.

Additionally, during the early period of the war, Gold reserves were used as a ‘piggy bank’ by Emerging Market nations to fund the huge increase in costs to procure energy (and manage currency runs).

Although oil prices are now falling as the US and Iran are negotiate a permanent peace deal, new Fed Chair Kevin Warsh surprised markets with a hawkish tone at his first rate-setting meeting last week, putting more downward pressure on the metal.

“The primary driver behind gold’s recent decline has been a significant repricing of interest-rate expectations,” Ewa Manthey, commodities strategist at ING Groep NV wrote in a note Wednesday.

Additionally, the debasement trade, a strategy favoring assets such as gold and Bitcoin over currencies vulnerable to inflationary, fiscal and monetary excess, has been losing momentum since President Trump nominated Kevin Warsh to lead the Fed.

Warsh’s statement that price stability is his overriding priority and his reputation as an inflation hawk have introduced doubts about the direction he would take, causing some investors to hedge their bets and leading to a decline in the debasement trade.

“Anyone who thinks that he is some kind of a stooge that’s been put in there to cut interest rates regardless of inflation is going to really, really be disappointed with Kevin Warsh,” said Gavyn Davies, co-founder and chairman of Fulcrum Asset Management and a former chief economist at Goldman Sachs.

“He’s not that kind of chair.”

The debasement trade – broadly defined as a strategy favoring assets such as gold and Bitcoin over currencies vulnerable to inflationary, fiscal and monetary excess like the dollar – had been one of the defining market narratives of the past two years.

“If the Fed has got the hiking bias, it’s really hard to play the debasement card,” Meera Chandan, JPMorgan’s co-head of global foreign-exchange strategy, said in an interview.

In the US, surging government borrowing and inflation running above target for more than half a decade fueled concerns that the greenback’s purchasing power would erode.

“What people were worried about was the inflation target, the Fed’s credibility and its independence,” said Jonathan Owen, a portfolio manager at TwentyFour Asset Management.

“I think those concerns were largely put to rest.”

All of which has helped push the dollar up to its highest since May 2025 (around the Nov 2025 highs)

As Bloomberg’s Jack Ryan and Yihui Xie report, several major banks have cut their gold forecasts in the last week.

Though revised targets imply prices will gain from current levels, Wall Street analysts are markedly less bullish than before.

Goldman Sachs axed $500 from a forecast that now sees bullion ending the year at $4,900 an ounce, while Deutsche Bank AG cut its fourth-quarter estimate by 17%.

It seems that Specs have thrown in the towel on the barbarous relic…

As the gold price has caught down to ETF holdings.

As Deutsche Bank wrote in a note, continued sales from gold-backed ETFs showed that the usual support for the metal is “notably absent,”

Meanwhile in China, the metal’s onshore discount to Comex prices in New York suggests imports will not be a support for the market, the bank’s analysts said.

But Goldman noted that gold ETF holdings that have undershot their federal funds rate-implied level

Still, one bright spot for bullion is the continued strength of central-bank demand.

“The one pillar which remains strong is central bank demand, and we expect this to be the case for some time to come,” Deutsche Bank wrote.

The monetary institutions added to their holdings at the fastest pace in more than a year in the first quarter, and survey data indicates they intend to buy more.