Gold futures for August delivery closed at $4183.10 per ounce on July 2nd (local time) at the New York Mercantile Exchange, according to Investing.com. The second quarter of 2025 marked the poorest performance in 13 years, with gold futures declining 13.4%—the steepest quarterly drop since Q2 2013. Rate hike expectations and dollar strength drove the decline, as Fed Chair Kevin Warsh prioritized inflation control amid rising oil prices from Middle East tensions. Gold spot prices also fell to $3943 per ounce intraday on June 30th, the lowest level since November of the previous year.
Gold Futures Record 13.4% Q2 Decline
Gold futures experienced a 13.4% decline during the second quarter of 2025, marking the largest quarterly drop since the second quarter of 2013. On June 30th, gold spot prices reached an intraday low of $3943 per ounce, the lowest level recorded since November of the previous year.
Fed Rate Hike Expectations Pressure Gold Prices
The possibility of interest rate increases weighed on gold prices. Gold is a non-interest-bearing asset, making it less attractive when interest rates rise as investors shift toward yield-generating instruments like bonds and deposits. Fed Chair Kevin Warsh identified price stability as the top priority, prompting markets to price in rate hike probabilities. According to CME FedWatch, the market anticipates two to three rate hikes this year, with a September rate increase reflected at over 60% probability.
Korean Retail Investors Exit Gold ETFs
Dollar strength increased the cost of purchasing gold, leading to fund outflows from gold ETFs. According to the Korea Exchange, individual investors net sold 78.1 billion won worth of 'ACE KRX Gold Spot' from July 2nd through August 2nd. 'TIGER KRX Gold Spot' and 'KODEX Gold Active' also saw net sales of 43.6 billion won and 14.7 billion won respectively. Investment capital shifted toward growth assets including AI semiconductors and the SpaceX IPO, reducing relative demand for gold investments.
Gold Prices Show Rebound Signs on July 2nd
On July 2nd, international gold prices broke a two-day decline, rising 0.9% intraday to trade around $4066 per ounce. The rebound occurred after Fed Chair Warsh delivered less hawkish remarks than market expectations at the European Central Bank forum in Portugal on July 1st, partially easing concerns about rate hikes within the year.
UBS Maintains Positive Medium-Term Gold Outlook
Market participants identify the Fed's monetary policy as the key variable for future gold prices. Experts note that factors supporting gold price floors remain in place, as central banks worldwide continue expanding gold reserves in response to geopolitical risks, potentially attracting buying interest near the $3900 per ounce level. Global investment bank UBS stated, "The Fed's short-term rate hike possibility is low, and the Fed's policy rate will eventually decline," adding, "We maintain a positive outlook for gold prices in the medium to long term."
FAQ
What caused gold futures to decline 13.4% in Q2 2025?
Gold futures declined 13.4% during the second quarter of 2025 due to Fed rate hike expectations and dollar strength. Fed Chair Kevin Warsh prioritized inflation control amid Middle East oil price increases, leading markets to price in multiple rate hikes for the year.
How did Korean retail investors respond to falling gold prices?
Korean retail investors net sold 78.1 billion won of 'ACE KRX Gold Spot' ETF from July 2nd through August 2nd, according to the Korea Exchange. 'TIGER KRX Gold Spot' and 'KODEX Gold Active' also experienced net sales of 43.6 billion won and 14.7 billion won respectively as investors shifted capital toward growth assets.
