Gold's outlook hinges on US payrolls, Fed policy; may test $3,800

Gold ended the June quarter the same way it spent most of it, under pressure and searching for a floor.  Spot gold is trading near $3,965 on the first day of Q3, already below the $4,008 June 30 close, after ending the quarter down 14 per cent, its largest quarterly decline in thirteen years.  The quarter opened with gold still above $4,700, and the gap between that level and the $4,008 close on June 30 tells the full story of what Warsh's Fed, an oil supply shock, and a protracted conflict in West Asia have done to the precious metal over three months.  Domestically, MCX gold remained relatively resilient, seeing a 5 per cent decline in the June quarter, supported by the depreciation of the Indian rupee and higher import duties, which have partially offset weakness in international prices. With selling extending into the opening session of Q3, the path of least resistance for the metal remains downward.  The transmission chain that drove this correction is straightforward. Disruptions to the Strait of Hormuz kept crude elevated through April and into May, pushing headline US inflation to 4.2 per cent year-on-year, the highest reading since April 2023, which hardened the Fed's resolve and strengthened the dollar. Each link raised the opportunity cost of holding non-yielding bullion.  When the US and Iran reached a tentative stand-down last weekend following the supertanker attack near the strait, oil gave back gains quickly, but gold received only partial relief. The damage to rate expectations has been substantial, with CME FedWatch implying one to two 25-basis-point moves by year-end, a meaningfully different landscape from where the year began.  Kevin Warsh's first FOMC in June delivered a hold but leaned decisively hawkish. Nine of eighteen officials penciled in at least one rate hike in 2026, with six projecting two separate 25-basis-point increases, a sharp reversal from March's dot plot which had pointed toward one rate cut.  Policymakers raised their inflation forecasts, with headline PCE now expected at 3.6 per cent for 2026 and core PCE at 3.3 per cent. Warsh shortened the post-meeting statement, stripping out language that had signalled an easing bias, and pushed the dollar to thirteen-month highs. Spot gold fell to $3,960 in the aftermath before recovering toward $4,090 on a softer PCE print, only to slip again this week to fresh seven month low of $3,943 as rate-hike expectations reasserted themselves.  That leaves the precious metal’s near-term path contingent on two immediate catalysts. The ECB Forum in Sintra brings Warsh alongside the heads of the ECB and Bank of England for a policy panel that markets will parse closely for any shift in tone, particularly as oil has cooled since the June meeting and energy-driven inflation pressures may be beginning to ease.  Three consecutive months of labour market beats have progressively hardened rate-hike expectations and a fourth strong print would cement September as near-certain and renew downside pressure on gold. A weaker-than-expected number could unwind some of the rate premium and give bullion room to consolidate above $4,000.  The scenarios from here are clear even if the outcome is not. A hawkish Warsh in Sintra combined with a strong NFP print would push gold below $3,900 and open the door to $3,800.  A softer payrolls read or a more balanced tone from Warsh could stabilise prices in the $4,050–$4,150 range. The Doha peace talks add a geopolitical overlay, as credible de-escalation on Hormuz would ease the residual oil premium and, through the same inflation-to-Fed transmission chain that weighed on gold during escalation, offer bullion support on the way down.  Structural demand metrics also warrant attention. China’s central bank has continued reserve accumulation for the nineteenth consecutive month, and the World Gold Council reported record global demand for Q1 2026, both reminders that institutional and sovereign appetites for gold remain intact. These are long-duration supports that act as a backstop, but they are unlikely to rescue gold in the short term from a hawkish payrolls print or a Warsh surprise.  In the immediate term, the metal's direction is squarely in the hands of the Fed, and this week provides the clearest read yet on how the Fed intends to interpret a labour market that remains resilient in the face of an energy-driven inflation cycle that may be past its worst.  On the daily chart of MCX Gold Futures, the contract remains in a well-defined bearish trend, characterized by a sequence of lower highs and lower lows, with prices trading below the downward-sloping moving average. The recent breakdown below the descending trendline reinforces the prevailing negative structure, while the ongoing pullback appears to be a corrective bounce within the broader downtrend.  The RSI is hovering near 30, indicating weak momentum and approaching oversold territory, suggesting scope for a limited technical rebound before the primary bearish trend resumes.  Immediate resistance is placed at ₹144,800, followed by ₹147,000, where fresh selling pressure is likely to emerge if the recovery extends. On the downside, support is seen at ₹137,550, with the next major support at ₹134,450, a break below which could accelerate the corrective decline.  The near-term outlook remains bearish, and traders should monitor the ₹144,800–₹147,000 resistance zone for potential selling opportunities, while a decisive move below ₹137,550 would confirm continuation of the prevailing downtrend.  (Disclaimer: This article is by Kaynat Chainwala, AVP - Commodity Research, Kotak Securities. Views expressed are her own.)