Gold futures hit fresh all-time highs around $3,052 on Wednesday before retreating slightly. The rally was fueled by mounting economic concerns and a cocktail of geopolitical tensions. However, market participants now fear a meaningful correction as prices are extremely overbought.
The dramatic rally, marking a 14% rise in gold since 2025 and a staggering jump of 38% over the last year, has captivated the markets. The investors fled to the gold due to its safe haven appeal as the Istanbul Mayor was detained on corruption charges and aiding the terrorist groups. He was a strong rival of President Erdogan. Moreover, the Russia-Ukraine conflict continues to unsettle investors despite a recent call between Trump and Putin. However, both leaders agreed to halt attacks on energy infrastructure.
All eyes are now on the FOMC meeting today as monetary policy decisions and future projections are key to gold’s price action. According to the CME FedWatch tool, the probability of holding the rates at current levels is 99%, while the rate cut odds in the June meeting are now 64%.
However, Fed Chair Powell’s policy statement is important. Any hint of delaying the easing process can weigh on gold as higher rates attract more investors than non-yielding assets.
The major driving forces behind the gold rally are trade war fears and a shift of the rate hike cycle to the rate cut saga. Moreover, central banks continue to purchase gold amid economic uncertainties. Despite the rally, the market participants are arguing over a significant correction in the gold prices.
Typically, recession fears boost gold demand, but deflation could ignite a sell-off in gold as cash becomes more prized. Moreover, stock investors may sell their gold to raise liquidity to support their equity holdings.
Traders are now bracing for the augmented volatility as markets eye FOMC and digest the geopolitical and economic concerns. The question now arises whether the recent bull run could be sustained or whether the correction will materialize before resetting the stage for gold’s next move.
