New Delhi

Gold prices could face further downside pressure in the near term as a strengthening US dollar, elevated bond yields and expectations of tighter monetary policy continue to weigh on investor sentiment, according to a report by the World Gold Council (WGC).

The precious metal extended its recent decline last week, with the LBMA Gold Price PM falling 0.8 per cent to close at USD 4,151 per ounce. The decline has taken gold nearly 5 per cent lower on a year-to-date basis, reflecting a challenging environment marked by a stronger greenback and higher interest rate expectations.

According to the WGC, market attention remains focused on whether the recent breakout in the US Dollar Index (DXY) above the psychologically important 100 level marks the beginning of a sustained uptrend or proves to be a temporary move.

"The US dollar index (DXY), taking its cue from the Fed's 'hawkish pause', higher bond yields across the curve and stronger equities - broke comfortably above 100 last week," the report said.

The council noted that if the dollar's upward momentum becomes entrenched, it could exert "further marginal pressure on gold", especially as investors reassess expectations around US monetary policy.

The report highlighted that the June Federal Open Market Committee (FOMC) meeting reinforced concerns over a prolonged higher-rate environment. Half of the committee members were seen leaning towards a tighter policy path, while Federal Reserve Chair Kevin Warsh reiterated his commitment to bringing inflation under control.

The WGC said expectations of stronger US inflation data could further strengthen the case for a hawkish Fed stance, limiting the appeal of non-yielding assets such as gold.

On the technical front, the council warned that gold remains vulnerable after failing to stage a meaningful recovery. "Gold has only seen a minor bounce and the subsequent fall leaves the spotlight back on key technical support from the 38.2% Fibonacci retracement of the 2022/2026 uptrend at US$4,075/oz," the report noted.

Analysts at the council said a decisive strengthening of the dollar could increase the likelihood of gold breaking below the USD 4,075 per ounce support level, potentially opening the door to deeper corrections.

However, geopolitical risks continue to offer some support to bullion prices. Ongoing tensions in the Middle East, uncertainty surrounding negotiations involving Iran, and concerns over global inflation dynamics are expected to keep safe-haven demand intact.

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While global gold ETF flows turned positive during the week, the WGC observed that options traders remain net short in the near term, indicating that broader market sentiment towards gold remains cautious despite persistent geopolitical uncertainties.