Gold prices are facing increasing pressure as the US dollar strengthens, leading to expectations that the Federal Reserve will maintain a tight monetary policy for a longer period. This situation has resulted in gold heading towards its third consecutive weekly decline.

The strengthening USD makes gold more expensive for investors holding other currencies. Nikos Tzabouras, a senior market analyst at Tradu.com, noted that gold is at risk of falling below the critical psychological level of $4,000 per ounce.

"Expectations that the Fed will keep interest rates high for an extended period are unfavorable for non-yielding assets like gold and support the USD," Tzabouras stated. The pressure on the precious metal has intensified following the Fed's recent economic forecasts, which indicated that nine out of 19 policymakers believe further interest rate hikes are necessary this year. Previously, the Fed had decided to keep rates in the range of 3.50% to 3.75%.

Current market data from the CME FedWatch tool shows a roughly 70% chance that the Fed will raise interest rates in September. Tzabouras emphasized that the future trajectory of gold prices will depend on negotiations between the US and Iran, upcoming US inflation reports, and how the market adjusts its expectations regarding Fed policy.

Geopolitical factors also continue to send mixed signals. Switzerland announced that negotiations between the US and Iran aimed at reaching a resolution to the Middle Eastern conflict would not take place as scheduled, following the cancellation of a planned visit by US Vice President JD Vance to the European nation. Meanwhile, a senior US official revealed to Reuters that Israel and Hezbollah have reached a ceasefire agreement effective from 1 PM GMT on Friday.

In light of increasing short-term risks, Goldman Sachs has lowered its year-end gold price forecast to $4,900 per ounce from a previous estimate of $5,400 per ounce. However, the bank maintains a positive long-term outlook for the precious metal, warning of short-term downside risks while still acknowledging mid-term upside opportunities.

Not all experts agree that a more hawkish Fed will end the gold price rally. Axel Merk, founder and CEO of Merk Investments, argues that investors should not automatically view a Fed focused on controlling inflation as a negative factor for gold in the long term.

Merk believes that the new Fed Chairman Kevin Warsh may create some resistance to gold prices in the short term but could also help alleviate the volatility caused by monetary policy. "Under unchanged conditions, Kevin Warsh poses a barrier to gold prices. However, I believe this will help reduce volatility and is a positive signal," he explained.

Merk appreciates Warsh's efforts to reduce the Fed's reliance on forward guidance, allowing the market to play a larger role in reflecting actual economic conditions. He argues that years of the Fed signaling policy have distorted the market and increased volatility unnecessarily. Limiting major policy mistakes will significantly reduce financial market volatility.

Merk highlighted that as attention to each Fed statement or interest rate forecast diminishes, investors may focus more on structural factors supporting gold, particularly the ongoing budget deficits and increasing public debt in the US. "For those who believe in gold, the core issue remains unsustainable deficits. The market should focus more on the fiscal aspect," he emphasized.

He also dismissed the notion that the opportunity cost of high interest rates is the decisive factor in holding gold. According to him, the precious metal is not only an investment asset but also serves to preserve purchasing power during periods of monetary instability, fiscal decline, and geopolitical tensions.

Additionally, he noted that recent pressure on gold prices has stemmed from the correlation between gold and oil prices amid Middle Eastern tensions. However, this relationship may weaken over time and become a new supporting factor for the gold market. "We should not simplify the gold investment narrative to just interest rates," Merk stated. He believes that even if the Fed succeeds in controlling inflation, long-term challenges such as rising public debt, persistent budget deficits, and geopolitical risks will continue to provide crucial support for gold prices in the coming years.