By Chris Weston, Head of Research at Pepperstone
Gold has been caught in a range of $3450 to $3220 since May and seems remarkably comfortable oscillating between these levels. With the market at fair value, this is reflected in client flows, which remain balanced and two-way. Inflows and volumes in both US and Chinese gold ETFs are subdued, while gold’s 1-month implied volatility sits not far from 12-month lows.
So, the question from clients is: what could shake some life into the gold market? And, if a move comes, is there a greater probability of an upside breakout and new all-time highs, or of a downside move through $3220, bringing $3000 into play?
I remain personally skewed towards the upside potential. The elephant in the room though is the credibility of the Federal Reserve, which is increasingly called into question. In some ways, it already is, but few are willing to express this openly in the markets.
Trump already has three Fed governors firmly under his influence, with Waller, Bowman and Miran all publicly calling for cuts. Along with Jefferson, these names are on the shortlist for the soon-to-be vacant Fed chair role in May 2026. Now we see Trump’s pressure building on Governor Cook. This leaves a worrying number of Fed policymakers perceived as pliant to the President – something that will inevitably erode confidence in USD-denominated assets.
The idea that the Fed could cut rates in September – currently priced with an 81% probability – at a time when next week’s US core PCE is projected at 2.9% (moving further away from the Fed’s 2% target) raises concerns of a mini-repeat of 2021’s ‘transitory’ fiasco. Of course, the truth of that debate will only unfold over time as the incoming US economic data plays out. Yet, the risk is clear: if the Fed cuts in September, when tariff effects are so difficult to model for future inflation pressures, and if the US labour market shows renewed resilience, then “credibility risk” becomes the buzzword – and that is a major reason to own gold.
With hindsight it may seem obvious, but it is in such a scenario that the Fed would almost certainly lose credibility and, more importantly, the US bond market would make its voice heard – loudly – and take the Fed to task.
Yes, September is seasonally a weak month for gold returns, but it feels increasingly like this sleepy market is poised to wake. And when it does, the good news for traders is that the first move won’t be the last move.