Does the Federal Reserve's 25-basis-point interest rate hike signal that the 'shoe has dropped'—i.e., that gold has already hit its bottom?

I personally believe gold has already reached its bottom, for two main reasons: first, U.S. long-term Treasury yields have already risen to a very high level, and I am not optimistic about further substantial increases. The fundamentals of the U.S. economy likely cannot support such continued hikes, nor can the current fiscal situation sustain a Volcker-style tightening regime. Historically, gold prices tend to rise *after* rate hikes begin—not during the anticipation phase. Gold is primarily suppressed by *expectations* of hikes; once those expectations materialize and the decision is made, prices often rebound. Moreover, major gold rallies typically require confirmation that inflation remains stubbornly resistant to Fed tightening—i.e., a clear signal that rate hikes alone are failing to tame inflation. That phase—rather than any single FOMC meeting—is usually when gold enters its strongest upward leg. The core issue this cycle is crude oil. Consequently, the effectiveness of rate hikes is likely to be limited. If the oil problem resolves, it may offer short-term support for gold—but if inflation is *confirmed* under control over the longer term, gold could subsequently retreat. Conversely, if the oil crisis persists unresolved, gold may undergo a sharp, violent rally following an initial correction—priced as a direct bet on runaway inflation. Will this cycle follow the historical script—i.e., will the Fed successfully curb inflation via hiking, thereby ending the gold bull market? I consider that highly unlikely. Two structural factors stand in the way: First, U.S.-China decoupling: China has long exported cheap goods to the U.S. (suppressing CPI) while simultaneously buying U.S. Treasuries (suppressing yields). This self-reinforcing loop has now been disrupted by U.S. policy—and mutual trust has eroded. Second, U.S. military setbacks in the Middle East have contributed directly to oil price volatility and loss of control. That said, both issues show signs of short-term improvement: (1) U.S.-China talks on tariffs are underway, with potential near-term progress; (2) U.S.-Iran negotiations are also advancing, albeit tentatively. Yet under a Trump administration, reversals remain highly probable. Even if these problems ease temporarily, they’re likely to resurface later. In the near term, easing of either issue could dampen rate-hike expectations—supporting gold. Over the longer term, however, recurring flare-ups may escalate into full-blown inflationary spirals—fueling a powerful gold rally. Should both issues somehow be resolved (a near-zero probability), global tensions would ease significantly—potentially triggering a modest gold bear market. Also, the fiscal cost of sustained high rates is mounting: one analysis estimates that maintaining elevated rates adds roughly $200 billion annually to U.S. government interest expenses—and further hikes would raise that figure even more. Thus, hiking without complementary fiscal consolidation—i.e., revenue enhancement and spending discipline—is effectively 'fake tightening.' The resulting fiscal strain will ultimately require even greater debt expansion to finance—meaning that while higher rates may suppress gold in the short run, they are quietly laying the groundwork for a stronger, more durable gold rally over time.

With the probability of a Fed rate hike rising to 60% and oil prices nearing $100 per barrel, why is gold rallying against the trend?

Despite mounting headwinds—including rising Fed rate-hike expectations and surging oil prices—gold prices remain resilient, with weakening U.S. dollar strength serving as the key catalyst. Spot gold rose as much as 0.7% to $4,435 per ounce during Tuesday’s Asian trading session, fully recovering Monday’s losses. The yen’s advance toward its highest level of the year versus the U.S. dollar pressured the broader dollar index lower—making dollar-denominated gold more attractive to overseas buyers. Meanwhile, renewed escalation in U.S.-Iran tensions sent Brent crude prices soaring toward $100 per barrel. Market pricing currently assigns roughly a 60% probability to a Fed rate hike as early as next week—capping gold’s upside. U.S. consumer price data due later this week will serve as a critical input for markets assessing the Fed’s policy path ahead of its September 14–15 monetary policy meeting. Several major asset managers have recently rebuilt their gold positions, betting on further medium-term gains. Dollar weakness provides direct support The primary driver behind gold’s recent rebound is the persistent softness in the U.S. dollar. The Bloomberg Dollar Spot Index fell 0.1% on Tuesday, following a 0.2% decline the previous day. The yen’s strength was pivotal in triggering the dollar’s pullback. USD/JPY is approaching its strongest level of the year, extending last week’s rally—fueled by growing market expectations that the Bank of Japan will soon raise interest rates. Gold typically moves inversely to the dollar; thus, a weaker dollar enhances gold’s competitiveness for international buyers. Spot silver rose 1% to $66.88 per ounce; platinum and palladium also posted gains. Oil prices and rate-hike expectations pose dual headwinds Although gold prices are rising, its upside remains clearly constrained by two key factors. First, the re-escalation of U.S.-Iran tensions has roiled energy markets. Ongoing tensions in the Strait of Hormuz continue to disrupt energy flows, pushing Brent crude prices higher—toward the $100-per-barrel threshold—and reinforcing concerns about persistent inflation. Second, rate-hike expectations have surged markedly.

Gold Gains on Softer Oil Prices; Fed Decision in Focus

14 hours ago

Spot gold rose 0.4% to $4,010.51 per ounce as lower oil prices eased inflation concerns ahead of the Federal Reserve's policy meeting. Oil prices fell amid hopes of easing US-Iran hostilities, while other metals like silver and platinum also saw mixed movements.

reuters

Gold Gains on Softer Oil Prices; Fed Decision in Focus

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