Fed Hawkish Storm Sweeps Market, Gold Under Pressure — Multiple Banks Cut Targets, Long-Term Outlook Still Uncertain

Keywords

Gold Price, Fed Hawkish, Target Price Cut, Silver, De-dollarization, Rate Hike Expectations

Introduction

Since Q3 2025, global financial markets have been overshadowed by hawkish Fed policy signals. Although the Fed held rates steady at its last meeting, its signal for at least one rate hike this year, combined with Middle East geopolitical tensions boosting energy prices and inflation expectations, has put heavy pressure on gold as a traditional safe haven. Gold has retreated about 28% from its all-time high near $5,600/oz in late January, now hovering around $4,068/oz. Against this backdrop, after Goldman Sachs and Deutsche Bank, BMO Capital Markets has officially lowered its gold price target, becoming the latest international bank to express caution on precious metals' short-term prospects.

However, despite short-term market sentiment gloom, BMO has not lost confidence in gold entirely, maintaining a long-term forecast of gold returning above $5,000 by Q1 2027. This contradictory signal reflects the complex situation facing precious metals: short-term macro pressure versus long-term structural support, making investment decisions significantly more challenging.

1. Fed Rate Hike Expectation: Gold's Biggest 'Top Threat' in the Short Term

In its latest Q3 commodities outlook report, BMO explicitly identified US monetary policy as the biggest and most urgent threat to gold and silver prices. As markets began to actively price in a rate hike before year-end, the Treasury yield curve steepened sharply, with the 2-year yield surging 13 basis points after the Fed's statement—the largest single-day gain since April 2025. Markets quickly consolidated expectations for a 25bp hike by October, directly suppressing the appeal of non-yielding gold.

Analysts note that Fed Chair Kevin Warsh has repeatedly emphasized his 'focus on price stability,' and the energy price surge from Middle East escalation has further fueled inflation worries. Although the Fed held steady this time, the 'hawkish pause' essentially paves the way for further tightening. BMO's economics team accordingly revised its forecast, pushing the first Fed rate cut from late 2026 to September and December 2027, with 25bp cuts each. This means the supportive effect of rate cuts on gold is much further away than previously expected.

Currently, many economies are in rate hike cycles, and rising real rates continue to increase the opportunity cost of holding gold. BMO commented, 'For now, rate cuts remain a distant prospect, and many economies are actually raising rates, which is a macro headwind for metals, all else equal.' This global monetary environment tightening is the fundamental reason for sustained gold pressure.

2. Target Prices Cut: From Goldman to BMO, Banks Turn Cautious Collectively

BMO lowered its H2 2025 average gold price forecast by 5% to $4,625/oz. While still about 13% above current market prices, the downgrade itself signals clear short-term pessimism. The bank maintained its long-term view that gold will return above $5,000 by Q1 2027 and forecast Q2 and Q3 2026 average gold at around $4,200/oz. This 'short-term downgrade, long-term bullish' pattern reflects banks' balancing of macro volatility and structural support.

BMO is not alone. Several international banks have recently lowered gold price targets, forming a rare collective shift. Deutsche Bank cut its Q3 and Q4 2025 gold price forecast by a sharp 22%. Goldman Sachs also lowered its year-end 2026 gold price forecast by $500 to $4,900/oz, citing expectations that the Fed will not cut rates this year. Additionally, BofA, UBS, and Morgan Stanley have all turned cautious on gold, believing it is unlikely to see significant gains in the near term, with downside risks rising and achieving target prices becoming harder.

The market interprets this as: gold's previous rally logic—inflation hedge, geopolitical safe haven, USD weakness—has been weakened to varying degrees in the current environment. Inflation remains high, but rate hike expectations suppress nominal rate transmission; geopolitical risks exist, but USD assets and energy price volatility divert safe-haven funds; the USD remains strong under rate hike expectations, further pressuring dollar-denominated gold. The collective downgrade by banks is a rational response to these fundamental changes.

3. Silver Also Faces Pressure: Industrial Properties Provide Support, but Macro Headwinds Persist

In tandem with gold, BMO also lowered its silver short-term outlook. The bank expects Q3 silver average around $69/oz and a mild recovery to $71/oz in Q4. While the downward revision is less severe than for gold, it still reflects market concerns about short-term industrial metal demand. Notably, BMO expects silver's recovery to continue into early 2027, peaking at an average of $74.80/oz in Q2 next year.

Silver's industrial properties distinguish it from gold. Ongoing global investments in power infrastructure and electrification (including renewables, grid upgrades, 5G base stations) provide structural support for silver industrial demand. BMO analysts said, 'Silver continues to benefit from its industrial properties, with sustained investment in power infrastructure and electrification supporting its underlying demand.' However, the durability of industrial demand faces tests—if global economic growth slows or Fed rate hikes trigger recession fears, silver's industrial properties may amplify price volatility.

Currently, silver prices are also suppressed by rate expectations and USD strength. Markets will continue to watch the rate path, geopolitical risks, and actual industrial demand. In the short term, silver is highly correlated with gold; longer term, it depends on the pace and strength of industrial recovery. BMO's forecast conveys cautious optimism: industrial fundamentals are decent, but macro headwinds cannot be ignored.

4. Long-Term Support Still Exists: De-dollarization Trends and Geopolitical Risks

Despite short-term pressure, BMO has not lost faith in precious metals. Its maintained long-term forecast of gold returning above $5,000 by Q1 2027 relies on two important structural logics: the global 'de-dollarization' trend and the potential for geopolitical conflict escalation.

The de-dollarization wave has intensified. Central banks in many countries continue to add gold reserves, and emerging market economies actively promote local currency settlement and bilateral currency swaps to reduce dependence on the USD system. Buying gold is often a symbolic move in de-dollarization, providing a solid floor for gold prices. BMO notes that while short-term market sentiment may be swayed by macro volatility, as conditions stabilize, precious metals may regain momentum. The de-dollarization trend will not reverse due to Fed rate hikes; instead, it may strengthen as USD credit is questioned.

At the same time, geopolitical risks remain a non-negligible variable. BMO specifically stated, 'The current risk lies in the long-term escalation of the Middle East situation, especially any disruption to energy supply and its transmission to inflation and interest rates.' The Iran war pushes up energy prices, exacerbates inflation, and forces central banks to raise rates—this chain hurts gold in the short run. However, if the situation spirals out of control, causing global supply chain disruptions or systemic financial risks, gold's safe-haven properties would be reactivated. Historical experience shows that geopolitical conflicts' impact on gold is usually pulse-like; after the short-term shock, the market re-evaluates gold's long-term value.

Conclusion: Short-Term Grinding Bottom, Long-Term Building Strength

In summary, the gold market is currently at a critical long-short tug-of-war. The Fed's hawkish stance, high real rates, and strong USD constitute three mountains suppressing gold prices. The collective downgrade by banks reflects full pricing of short-term macro headwinds. However, de-dollarization trends, geopolitical risks, and potential emerging-market demand provide long-term support.

For investors, the current market environment reminds us: precious metal investment requires attention to both short-term disturbances from Fed policy and long-term trends in global monetary system restructuring and geopolitical shifts. BMO's forecast—H2 average $4,625, returning to $5,000 by 2027—embodies this contradictory pattern: short-term may continue grinding lower, but long-term value remains promising.

Risk warning: Unexpectedly aggressive Fed tightening, easing Middle East tensions, or excessive global recession could further depress gold prices. Investors should make decisions prudently based on their risk tolerance.