Recent exemptions of select electronics from US tariffs provided a temporary lift to stock markets, but ongoing tariff threats dampened expectations. Gold prices surged to a record $3,245 per troy ounce, partly due to a weakening US dollar and increased purchases in Gold ETFs.
Monetary policy is lending further support to Gold’s climb. While the European Central Bank is anticipated to cut interest rates and remain open to further easing, the US Federal Reserve’s direction is uncertain due to inflation concerns and economic slowdown. Market forecasts suggest a possible rate cut by June.
Fed’s Stance On Precautionary Rate Cuts
Minneapolis Fed President Neel Kashkari suggested no need for precautionary rate cuts, which could potentially slow Gold’s rally if echoed by other Fed officials. Should Fed Chair Powell align with this sentiment, it may impact market reactions.
The brief market uplift from exemptions on specific electronics within the latest US tariff schemes has been effectively neutralised by the persistent spectre of broader trade restrictions. What began as a slight boost for equities quickly lost strength as attention returned to longer-term impacts of constrained international trade. This hesitancy has directly weighed on investor sentiment, leading to mixed positioning in risk and safe-haven assets.
In contrast, Gold has extended its rally, making a fresh all-time high at $3,245 per troy ounce. The primary drivers, as we see them, are clear. The weakening dollar presents a more accessible entry point for foreign demand, while inflows into Gold ETFs have picked up notably. These structural flows suggest a degree of conviction that goes beyond short-term hedging.
Adding to the bullish undercurrent is the posture of monetary authorities globally. The European Central Bank, widely expected to reduce borrowing costs, seems inclined towards a more accommodative stance for the months ahead. The timing of this shift, if confirmed, may encourage further asset reallocation from yield-focused portfolios into real assets. The stabilisation of inflation in the euro area would only amplify that trend.
Monitoring Fixed Income Market Reactions
The modality of policy in the United States, however, remains less direct. While inflation prints have moderated recently, they’re not yet conclusive. The market seems to be leaning towards a policy cut around June, but the Federal Reserve is clearly split. Kashkari’s latest comments paint a picture of caution. He sees no strong reason for the Fed to get ahead of itself. This implies that barring a convincing sign of softening economic conditions or rapidly falling inflation, policy relief may not come soon.
Traders should be careful about anchoring to the June rate cut narrative too strongly. We’ve noticed volatility picking up across rates futures, suggesting a pricing-in of two-way risk. Powell’s upcoming remarks could push that balance one way or the other. If he echoes Kashkari’s views, even subtly, that could spur some tightening impulses back into the curve.
It’s also worth watching how fixed income markets interpret incoming labour data. A stubbornly strong payroll figure or resilient wage growth would feed into the Fed’s caution, perhaps reinforcing the idea that the peak in Gold could be tested but not broken. The extent to which traders are defensively long will matter. A shift in tone from Powell or any hint of re-steepening in the yield curve could prompt liquidations in some parts of the complex.
We’d also highlight that flows into commodity-linked strategies have shown a clear preference for diversification. Gold may be the current beneficiary, but other precious metals are beginning to see marginal increases in exposure too. If bond yields back up even modestly, the pressure on Gold from opportunity cost factors will re-emerge, especially if other central banks outside Europe signal resistance to easing.
From here, data sensitivity increases. Positioning looks extended but not stretched, implying room for continuation if macro aligns. Traders leaning on correlation-based strategies should assess their hedges against sudden shifts in Fed communication. Absence of conviction from Powell could introduce range-bound behaviour for a time, but not necessarily a reversal, barring exogenous shocks.
As the calendar moves closer to the June meeting, market-implied expectations may need recalibration. For now, we remain attentive to speeches from FOMC members for any deviation from current pricing, particularly in light of Kashkari’s stance.
