- Gold futures consolidate as investors brace for Fed policy meeting.
- Weaker economic data and cooling inflation urge a dovish Fed.
- Geopolitical concerns lending short-term strength to the dollar, is capping gold gains.
Gold futures remain subdued on Wednesday, pricing around the $3,400 level as investors brace for the Fed’s rate decision today. The central bank is expected to keep rates unchanged. Market participants are focused on economic projections, the dot plot, and future monetary policy guidance for the second half of 2025. Hence, the next leg for gold’s price now depends on the Fed’s actions.
Despite a consensus about the Fed’s steady funds rate, the weak US economic data has fueled speculation of a more dovish stance than previously thought. Retail sales and industrial production for May dropped far more than expected, signaling a slowdown in consumer activity. On the other hand, inflation metrics have cooled down. The CPI and PPI readings for May missed forecasts, which reinforced the easing since September.
The weakening macro indicators have already influenced interest rate expectations. According to the CME FedWatch Tool, the markets are now pricing in a 44 bps rate cut by the end of 2025. US 10-year Treasury yields, along with real yields, have already shown signs of weakness, as a result providing support to non-yielding assets like gold.
On the other hand, geopolitical concerns are compounding economic concerns. The ongoing Iran-Israel strikes, entering their sixth day, are keeping risk sentiment sour. On top of that, President Trump’s threat of military intervention and renewed tariffs on pharma are weighing on risk assets. However, despite the factors supportive of gold, the dollar’s recent strength is capping gains in gold futures.
Moreover, the central bank’s demand for gold keeps offering long-term support to gold. A recent survey by the World Gold Council shows that 95% of central banks are looking to increase their gold reserves in the coming year. It underscores the metal’s strategic role amid de-dollarization.
As the Fed is preparing to outline its updated outlook, gold futures are consolidating in a tight range. The metal may face short-term pressure if the Fed surprises with a cautious tone or trims its rate-cut projection. Contrarily, a dovish tone may further push yields down, giving more of a boost to gold.
