Gold: Will the Fed settle the matter?

Gold: Will the Fed settle the matter?

·         Gold is eagerly awaiting the central bank’s decision.

·         The rebound in gold prices is due to weaker headwinds.

The US dollar continues to retreat as geopolitical risks ease, and concerns about Kevin Warsh’s dovish rhetoric subside. Donald Trump insists that the agreement with Iran is a done deal, which has pushed Brent below $80 a barrel and triggered a recovery rally in US stock indices.

At the same time, fears of a further surge in inflation are receding, as reflected in Treasury bond yields. The precious metal is shifting its focus from the Middle East conflict to monetary policy, re-establishing its correlation with bond prices. The enigmatic nature of Warsh is fuelling fears that the outcome of the meeting could lay the foundations for a long-term weakening of the dollar.

The new chair is an advocate of flexibility at the Fed. He believes the central bank should not paint itself into a corner with forecasts when the future could change significantly. Indeed, by the end of 2025, investors expected interest rates to fall due to a weak labour market and a gradual slowdown in inflation. However, employment is currently growing at its fastest pace since 2023, whilst consumer prices have surged to 4.2%.

The FOMC’s previous forecasts are out of touch with reality. They assume a cut in interest rates. Investors are now keen to know how many Committee members will signal a rate rise in their updated projections. This conundrum, coupled with the change in wording suggesting that the next step will be a loosening of monetary policy, is the key takeaway from the Fed’s June meeting.

Gold is placing its fate in the hands of the central bank, as the future trajectory of the dollar and US Treasury bond yields depends on the central bank’s decision. The most likely scenario is that the Fed will maintain a ‘wait-and-see’ stance, allowing the precious metal to focus on the fallout from the end of the conflict in the Middle East.

Gold’s rebound from its autumn 2025 low reflects waning headwinds, including the greenback’s strength amid escalating geopolitical tensions, higher energy prices and Treasury yields, as well as reduced demand for bullion from central banks and for ETFs from investors.

The FxPro Analyst Team