Gold prices fall back to a more than 15-month low

Although gold is seen as a hedge against inflation, it remains “under the mercy of rate-hike expectations thanks to its zero-yielding nature,” said Otunuga. “Investors have cut bets on how aggressive the Federal Reserve may be when raising interest rates this month,” but the high interest rate environment is “likely to dim the precious metals allure.”

For now, “it feels like gold is waiting for a fresh directional catalyst to pierce below the $1,700 psychological support,” Otunuga said.

Read: Surprise! Inflation hedges like real estate, gold and TIPS ‘are not performing as expected’

Meanwhile, a team of currency analysts at ING said the greenback’s recent retreat was inspired by a recovery in risk sentiment which helped U.S. stocks achieve their strongest daily gain in a month, while small cap stocks notched their best day in 18 months.

“Our view is that even if the dollar did bottom out in the past week, the path to a sustained depreciation remains challenging, and would most likely be very gradual from this point on,” the team wrote.

The big question now is whether gold can hold above $1,700 after the yellow metal declined for five straight weeks through Friday.

“Gold, and every market for that matter, is reacting to the stark reality of a Fed seemingly intent to tighten into a recession,” said Brien Lundin, editor of Gold Newsletter.

“The next catalyst for the metal will be the first hints from the Fed that it is at least easing its tightening program, to be followed by a full retreat once the higher rates and ballooning debt service costs start to hit the federal budget,” he told MarketWatch. The Fed may be forced to “loosen the reins by early Fall,” he said, adding that’s when he expects the next substantial rally for gold.