The
world does not revolve around AI stocks; other assets perform very well. A
notable example is gold, which surpassed $3,500 per ounce for the first time in
history last week. Since the beginning of the year, the precious metal has
gained up to 30%.
To put
that in perspective, the S&P 500 and Nasdaq have only risen 10% and 11.3%
in the same period, while BTCUSD
has risen around 12%. It’s not just about geopolitics;
despite Trump’s attempts, tensions show no signs of abating, whether in Eastern
Europe or the Middle East.
One of
the main factors driving the latest rise in
gold prices has been increased expectations of a Fed interest rate
cut, even if only by 25 bp. Following the sharp downward revision of U.S. labor
market data for May and June, the chances of a long-awaited monetary policy
easing increased significantly.
According
to the CME FedWatch tool, there is now an 89% chance that the Fed will cut
rates to 4.00-4.25% at its September meeting, down from the current 4.25-4.50%.
With two more meetings ahead, rates could fall even further by the end of the
year unless the macro prevents it.
The
thing is that while the U.S. labor market does seem to be cooling (Friday’s
unemployment data will be key), last week’s PCE figures suggest the inflation
battle isn’t over. The Fed’s preferred inflation gauge — the PCE deflator —
rose 0.2% month-over-month and 2.6% year-over-year in July.
Although
the annual pace remains below the Fed’s forecasts, the trend shows signs of
acceleration.
Donald
Trump has also boosted gold’s momentum, specifically with his repeated attacks
on Fed officials, whom he is pressuring to change
monetary policy “the right way.” Of course, the Fed is supposed to maintain its
independence and make decisions based on its dual mandate of full employment
and stable inflation.
If
policy changes begin to reflect political pressure, confidence in the Fed could
be undermined. It is no surprise that Treasury yields and the dollar index have
reacted negatively after each of Trump’s outbursts against Powell or other Fed
members. If he ultimately gets his way, market conditions could deteriorate
further.
Last but
not least, trade tensions also play in gold’s favor. For example, amid growing
friction with India, reports suggest that New Delhi has been reducing its
holdings of U.S. Treasuries while increasing its gold reserves in response to
Trump’s widespread tariffs. China is also reducing its holdings of Treasuries.
In
summary, if the Fed cuts interest rates more aggressively, geopolitical
tensions remain high, and the dollar continues to weaken, gold could exceed
$3,600 by the end of the year. That said, things can change quickly — so it’s
worth keeping a close eye on how the story unfolds.
