Gold's next test is the US Fed, as Kevin Warsh holds his first FOMC

Gold's behaviour through the ongoing US-Iran conflict has been far less straightforward. The metal slipped to a six-month low of $4,023 on June 11 before rebounding sharply above $4,350 amid conflicting signals from Washington and Tehran.  A similar pattern played out in late March, when gold slipped to $4,100 before rebounding to $4,900 by mid-April. The swings look dramatic on a chart, but the underlying driver in both episodes was the same with the path of US rates, transmitted through oil and inflation, rather than any safe-haven bid tied to the conflict itself.  The divergence between international and domestic prices this year is worth noting. So far in June, spot gold is down nearly 4 per cent, while MCX gold is down a more modest 2 per cent. On a year-to-date basis, the gap widens further as spot gold is roughly flat, while MCX gold is up around 12 per cent, a difference largely explained by the rupee's nearly 5 per cent depreciation over the same period and the customs duty hike, which has cushioned domestic prices even as the dollar-denominated metal has struggled.  That transmission chain has been the real story this cycle. Disruptions to the Strait of Hormuz kept crude elevated, elevated crude fed into headline inflation, and that inflation hardened the Fed's stance and strengthened the dollar, with each link raising the opportunity cost of holding non-yielding bullion.  The May CPI print confirmed it directly, with headline inflation accelerating to 4.2 per cent year-on-year, the highest since April 2023, driven largely by Hormuz-linked energy costs. That arrived on top of an already-hawkish repricing, after robust labour data pushed December rate-hike odds toward 60-70 per cent on the CME FedWatch Tool and sent the 10-year Treasury yield toward 4.6 per cent.  Gold sold off not because the war became less threatening, but because the war was making the Fed's job harder.  The reversal worked through the identical mechanism in the other direction. Once Washington and Tehran signalled an interim arrangement to halt hostilities and restore Hormuz traffic, oil reacted first and hardest, with Brent and WTI losing nearly 15 per cent in four sessions as markets priced in normalised flows.  The dollar and Treasury yields softened in step, helping fuel a relief rally in precious metals. Swap markets followed suit, with December rate-cut odds swinging from roughly 80 per cent to 60 per cent within days as easing energy prices took some of the edge off inflation expectations.  That makes today's FOMC decision the most important data point on the calendar. This is Fed Chair Kevin Warsh's first meeting at the helm, and markets will be parsing both the rate decision and the accompanying economic projections for the clearest signal yet of how he intends to run policy. December rate-hike expectations have already eased to around 56-57 per cent from near 70 per cent a week earlier, as the Hormuz de-escalation works through the same chain.  A dovish surprise, or a dot plot pulling back from the rate-hike path markets have been pricing, would trigger a sharp pullback in the dollar, which has held stubbornly above 99.5 even as oil prices collapsed, and would be unambiguously supportive for gold, validating the recent recovery and reopening the path toward the $4,400-4,600 zone.  A hawkish read, particularly if Warsh signals scepticism that the inflation backdrop is easing meaningfully even with oil cooling, would reassert the headwind that drove gold toward $4,000 just last week.  The Summary of Economic Projections will be decisive here, as a median dot showing even one hike in 2026 would mark a meaningfully hawkish revision from March's outlook. The Fed is widely expected to hold rates steady at this meeting, but the key watchpoint is whether officials signal a formal shift away from the easing bias or instead strike a tone that factors in the conflict's de-escalation and tilts the outlook toward a more balanced hike-or-cut path.  If crude's slide persists, the same oil-to-inflation transmission that pressured bullion during escalation should flip to support gold and silver, as lower energy-driven inflation expectations reduce Fed tightening odds, compress real yields, and weaken the dollar, keeping precious metals well bid even as the geopolitical premium fades.  The structural floor beneath gold remains intact regardless of today's outcome. China extended its streak of reserve accumulation to nineteen straight months in May, and the World Gold Council reports that 45 per cent of global reserve managers intend to add to gold holdings over the next year. However, that is a multi-year theme. In the immediate term, gold's direction will depend more on the Federal Reserve's interpretation of inflation risks and the policy signals delivered through today's meeting and accompanying projections.  Gold futures are trading in a consolidation phase after witnessing profit booking from recent highs, with prices holding above the key support zone near 149,500. The long-term trend remains constructive as prices continue to trade well above the 200-day moving average, while the formation of a descending trendline suggests resistance around 158,600–160,000. Momentum indicators are neutral, indicating a lack of strong directional conviction in the near term.  A sustained move above the trendline resistance could trigger fresh buying interest and pave the way for higher levels. Until then, the outlook remains sideways to bullish, with dips likely to attract buying interest.  (Disclaimer: This article is by Kaynat Chainwala, AVP - commodity research of Kotak Securities. Views expressed are his own.)