Gold drops as Fed governor says next move likely to be rate hike

Published Mon, May 25, 2026 · 06:34 AM

[NEW YORK] Gold declined as traders ramped up bets on US Federal Reserve monetary tightening after governor Christopher Waller warned the Iran war’s energy shock could fuel inflation.

Bullion slipped as much as 1.1 per cent as bond yields and the US dollar climbed. Waller said that he supports making clear the central bank’s next interest-rate move is just as likely to be an increase as a cut, as the energy shock from the Iran war pushes up prices. Traders have now fully priced a quarter-point rate hike by December for the first time. Higher rates typically weigh on gold as it pays no interest.

Waller said that his current position is to be patient in holding rates until the war’s impact is clearer, but warned on Friday that he would not rule out a future hike if inflation does not start to slow soon.

Meanwhile, US consumer sentiment fell in May to a record low and long-term inflation expectations worsened notably due to the Middle East conflict. The University of Michigan’s final May sentiment index declined to 44.8 this month from 49.8 in April, according to the survey released on Friday. The data also showed consumers expect prices to rise an annualised 3.9 per cent over the next five to 10 years, up from 3.5 per cent in April and the highest in seven months.

Bullion has traded within a fairly narrow range since falling sharply in the early days of the Iran war, as investors weigh higher rates against the prospect of a high-inflation, low-growth scenario. Bullion is down about 15 per cent since the conflict began in late February.

Separately, US President Donald Trump stressed that he wants Kevin Warsh to independently lead the Federal Reserve, as he looked to downplay investor concern that he would pressure the new central bank chief on policy decisions.

Warsh, who has promised the biggest shakeup in decades at the US central bank, was sworn into office on Friday in a White House ceremony as the 17th chair of the Fed.

Spot gold fell 0.8 per cent to US$4,508.75 an ounce as at 3.47 pm in New York. Silver declined 1.4 per cent to US$75.61 an ounce. Platinum and palladium fell. The Bloomberg Dollar Spot Index, a gauge of the US currency, rose 0.1 per cent. BLOOMBERG