- Gold futures remain steady as markets experience US political risk.
- Trump’s removal of Fed Gov Cook could weigh on the Fed’s policy path.
- US GDP and Core Data due this week could provide further impetus.
Gold futures began the new week with traders walking a tightrope between political risks, the US inflation sprinkles, and the most expected monetary policy easing. Following a phase of neutral direction, the market is gearing up for new volatility with investors reevaluating Federal Reserve dynamics and global demands on safe-haven instruments.
A key determinant of gold futures is the confusion surrounding Federal Reserve policy. The standoff between President Trump and the Fed has been an ongoing event that has captured the attention of investors, especially considering the future of Fed Governor Cook.
Should Trump manage to remove her and shift the balance of FOMC voting members towards the dovish, the markets may experience a rapid growth of dovish policy expectations. In the case of gold futures, this would imply an appreciation in prices as the decrease in interest rates lowers the cost of holding non-yielding assets such as gold and its status as a hedge against policy uncertainty.
The GDP revisions and the Core PCE inflation data to be released later this week will be decisive. Given the preference of policymakers to that effect, the Core PCE will confirm whether or not policymakers can afford to ease further. A soft reading will confirm the recent monetary policy easing and will offset the uncertainty. Contrarily, more resilient data may curtail gains on gold futures as players reel in their hopes.
In the meantime, the US term structure and market-implied futures of interest rate cuts are very strongly correlated with current gold futures pricing. Any flattening of the curve, with earlier cuts factored in, would provide a new impetus to metal. On the other hand, a pullback by policymakers and fading odds of easing would again put futures under pressure.
In addition to US monetary dynamics, monitoring of ETFs and speculative flows is worth attention. The data in the CFTC indicate that positioning remains soft, leaving room to accelerate long if headlines or data shift the market narrative to a dovish tone. Similarly, consistent central bank buying, especially in emerging markets, has helped maintain the bullish tone of the gold price, particularly when the dollar is performing well.
