Is the gold safe haven trade back as Fed rate cuts near?

Gold prices rose 1% last week and touched a two-week high of $3,385 after Jerome Powell signalled that the Federal Reserve could cut interest rates at its September policy meeting. According to the CME FedWatch tool, traders now see an 84% probability of a 25bps rate cut and are pricing in the chance of two quarter-point reductions before year-end. The growing expectation of easier policy is boosting gold’s appeal, but inflation risks and political interference with the Fed raise questions about how far the rally can run.

Key takeaways

• Gold traded to $3,385, with traders eyeing the $3,400 level as the next technical breakout point.
  
  
• Markets are pricing in two US rate cuts in 2025, but the Fed has not committed to such an aggressive path.
  
  
• Political pressure on the Fed escalated after President Trump attempted to remove Governor Lisa Cook, raising concerns about the central bank’s independence.
  
  
• The next test for gold comes with the PCE inflation report, GDP revisions, and consumer spending data.
  
  
• Global economic releases in Europe, Asia, and Canada add further uncertainty for gold’s near-term direction.
  
  

Powell's Jackson Hole speech opens the door to rate cuts

In his Jackson Hole speech, Powell balanced two competing risks: slowing growth and stubborn inflation. He noted that the labour market shows signs of weakening, particularly in job creation and participation, and that downside risks to employment are rising.

At the same time, inflation remains above the Fed’s 2% target, and Powell warned that the central bank cannot declare victory too soon.

Still, his remarks were interpreted as dovish. Powell said monetary policy remains accommodative and that the balance of risks may require adjustment. Economists argue that this language signals that the Fed is leaning toward a September rate cut. Markets reacted accordingly, with traders expecting at least one reduction this year and building in expectations for a second by December.

However, the Fed has stopped short of endorsing that aggressive trajectory. Dallas Fed President Lorie Logan and other policymakers have suggested the central bank has flexibility but must remain data-dependent.

Trump vs Fed independence

The political dimension has become a new factor for markets. President Trump announced that he was removing Fed Governor Lisa Cook, citing allegations of mortgage fraud. Cook rejected the claim and asserted that Trump had “no authority” to dismiss her.

This episode matters because it highlights the risk of political interference in monetary policy. Trump has previously criticised Powell and pushed for immediate rate cuts. If Cook were replaced by a Trump ally, the Fed’s seven-member board would tilt further toward his preferred policy of looser financial conditions.

Markets view any erosion of the Fed’s independence as a blow to credibility. Historically, when confidence in central bank autonomy weakens, saf-haven assets such as gold attract capital flows. That dynamic has already been visible in this week’s rally, as traders balance the Fed’s policy path against rising political risks.

Data-driven risks to gold’s rally

Gold’s push toward $3,400 is not guaranteed. The coming data releases will decide whether the rally holds or fades:

• PCE inflation report: The Fed’s preferred inflation gauge will be the most important release. A hot reading would strengthen the dollar and lower the likelihood of further cuts, weighing on gold.
  
  
• GDP updates: Revised second-quarter GDP growth will show whether the economy is slowing as much as feared. Stronger growth could undercut the case for rate cuts.
  
  
• Consumer spending and income: These figures reveal household resilience. If consumption stays strong, the Fed may keep rates higher for longer.
  
  
• Durable goods and housing data: Weakness here would bolster the case for easing and support gold.
  
  

In other words, gold’s path depends on whether economic weakness outweighs inflation risks.

Global market drivers

Beyond US releases, global economic events could add volatility. Eurozone inflation prints this week will be watched for signs of easing price pressures, which could have implications for European Central Bank policy. The ECB’s latest meeting report will offer clues on whether further rate cuts are being considered.

In Asia, China’s official PMI will provide an update on manufacturing activity, while Japan’s month-end releases will show consumer and industrial performance. Canada and India are also set to publish GDP figures. Together, these data points shape global growth sentiment, which influences safe-haven flows into gold.

Corporate earnings could also play a role. Nvidia’s results will test global tech momentum. Weakness in equities often boosts demand for gold as a portfolio hedge.

Market impact and price scenarios

Analysts say the base case is that the Fed delivers one rate cut in September, which would support gold above $3,385 and open the door to $3,400+. If the Fed signals a second cut by December, momentum could push prices higher toward $3,425 or $3,450.

The downside case is that inflation remains hot, forcing the Fed to pause. That would strengthen the dollar, lift Treasury yields, and keep gold capped below resistance. In this scenario, prices could retrace toward $3,360 or even $3,325.

Gold price technical analysis

Technically, gold is consolidating just below resistance at $3,400. A sustained close above this level would confirm a breakout, with the next resistance at $3,440. Support sits at $3,315, with stronger levels at $3,385.

Investment implications

For traders, the balance of risks points to near-term volatility around US economic data. Short-term positioning may favour tactical plays on a breakout above $3,400 if the PCE report confirms cooling inflation. Medium-term strategies should account for the possibility that the Fed cuts less than markets expect, limiting gold’s upside and keeping it in a $3,325–$3,400 range.

Political risks surrounding Fed independence provide an additional safe-haven bid, meaning downside could be cushioned even if US data is stronger than expected. Longer-term investors may see this as a period where gold remains supported by uncertainty, even if breakouts are capped.

Frequently asked questions

Why could gold break above $3,400?

Markets expect a September rate cut, which reduces the opportunity cost of holding gold and weakens the dollar.

What could prevent a breakout?

Hot inflation data or stronger GDP growth could delay rate cuts, supporting the dollar and limiting gold’s upside.

How does Trump’s move against Lisa Cook matter?

It raises concerns over Fed independence, undermines trust in policy, and drives safe-haven demand for gold.

What other global data is relevant?

 Eurozone inflation, China’s PMI, Canada and India GDP, and Japan’s month-end releases will all influence gold via risk sentiment.