Gold Hold at $4k for Now, but How Will it Handle the Fed?

Gold Talking Points:

• While fundamentals often have drive on big picture trends, the relationship is imperfect.
• More pressing is positioning and how near-term fundamentals change or continue current themes, and when an overbought trend suddenly faces a change-in-pace, the counter-trend move can be sizable. This explains gold price action so far in 2026.

As we came into the year gold was all the rage. Bitcoin seemed to be an afterthought but with the metal pushing into the $4500 level before the end of last year you didn’t have to look far for forecasts to $6k. And even then, that seemed to be the prudent ones. January went along with that tune, at one point running as high as 31% from the low to the high. But that’s when the proverbial music stopped with a massive sell-off over the next couple of days of as much as 21%.

It’s environments like those that make the efficient market hypothesis nonsensical to defend. And for an outside observer, it can look like a clear display of chaos theory at work. But, the reality is we can condense the ‘whys’ behind the move, and it begins to make a bit more sense.

With a Fed that seemed unconcerned with inflation and a Federal Government unbothered by debt load, gold prices were a natural venue to park capital.

But as the war in Iran brought another inflationary factor into the mix, and as oil prices scaled higher and higher, there was suddenly another concern to deal with, and it’s been the pricing in of that, with the prospect of higher rates in the US, that has had a dominating impact on gold price action so far this year.

Gold Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold Loves Lower Real Rates

Gold has no yield, and the primary prospect of profit is the ability to sell it at a higher price down the road. This differs quite a bit from other investments that will serve as a storage place for capital, such as bonds. Bonds carry a yield. You earn money simply for being invested in them. And as such, they act as a magnet for capital when they’re high enough that the rate of return is attractive.

After all, this was part of the design of QE…

With the Fed buying bonds in the open marketplace prices went up, and yields went down. If you’re an investor, now you have a much less attractive spot to park your capital. So, what are you going to do, especially when real rates of return for holding a Treasury narrows to lower and lower amounts? You’re probably going to look for somewhere else to invest that capital, like stocks, or perhaps even gold.

This is why gold jumped back in February of 2024 as Austan Goolsbee dismissed the continued above-target inflation prints. It showed the Fed had little tolerance for higher rates, even if their own mandate necessitated that. The expectation for inflation was higher, and the expectation for rates was lower, thus, there was even less incentive for capital to flow into Treasuries or bond-based investments and, instead, that capital pushed into a non-yielding instrument like gold in anticipation of what would happen next.

This is also why gold rallied so hard after the response to the financial collapse, as that QE mechanism made alternatives far less attractive.

Gold Monthly Chart

Chart prepared by James Stanley; data derived from Tradingview

What’s Gold Saying Now

If gold is looking around the next corner, it’s currently telling us that there may be a mistake in the not-too-distant future, in the form of inflation.

As the Iran war drags on and as the SPR has drained a significant amount of supply, runaway oil prices threaten to drive inflation to the point where the Fed cannot ignore it, much like we saw back in 2022 which was the last time that gold held a prolonged bearish trend, until this year, at least.

We can see this starting to play out in US Treasuries as the 30-year sits on the verge of fresh 17-year highs in yield, and the 10-year carries similar breakout potential. As those instruments jump to higher yields there’s a larger and larger opportunity cost for holding capital reserves in a non-yielding asset, such as gold, particularly when the possibility of selling it down the road for a higher price is less likely than it was a year ago.

It’s not a foregone conclusion yet, of course, as matters can change quickly on this front. But so far Kevin Warsh has sounded much more hawkish than markets were expecting, although I think this can be explained away fairly easily by the fact that he’s trying to retain the idea of Fed independence after the lead-in to his nomination saw it very much come into question.

For next week, I think that’s where the game is for gold. If Warsh comes off as overly hawkish at the FOMC meeting on Wednesday, there’s even more reason for longer-term bulls to cut bait, and for prices to tilt back below the $4k level. That could very easily lead to the first close below the big figure since late last year.

But, if stocks are still on their back foot I don’t think this is an envelope that he wants to push that hard. I think that he’ll back off of the hawkish talk during the press conference and that can allow for stocks to find some sense of support, the Dollar to pull back which would mean a lot given the BoJ meeting a day later, and that could allow gold prices to find a bounce.

This isn’t to say that sellers will be completely finished in gold, as I’ve been saying, I think we need to see the $4200 level get taken out first before we can start to posit that a bottom might be in. But given the calendar for next week and the price action in gold, there’s an open door for this scenario to play, and that’s my base case for expectations into the July FOMC meeting.

Gold Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro