Key insights
- The article discusses gold's price movements driven by Federal Reserve rate cuts, a weaker USD, and geopolitical tensions. Despite recent pullbacks, gold has significantly increased in value. High inflation, fueled by oil prices and ongoing conflicts, is noted. While the Fed is expected to hold rates steady at the upcoming meeting, potential future rate cuts or continued geopolitical instability could influence gold prices. The impact on US equities is neutral in the short term as the focus is on gold as a hedge rather than a direct equity driver.
Gold's price hit a record high of nearly $5,600 per troy ounce in January. It's pulled back to about $4,500 as of this writing, but it's still more than doubled since the end of 2023.
The Federal Reserve's six consecutive rate cuts in 2024 and 2025, which reduced its benchmark rate from 4.75%-5.00% to 3.50%-3.75%, drove gold higher by weakening the U.S. dollar. That trend drove more investors to buy gold as a hedge against a weaker dollar.
The Iranian conflict, which started at the end of February, convinced even more safety-seeking investors to buy gold. That pressure propped up gold, even though the Fed left its benchmark rates unchanged at its first three FOMC meetings this year in January, March, and April.
Should you invest in gold via a top ETF like the SPDR Gold Trust (GLD 0.99%) before the next FOMC meeting on June 16? Or will gold lose its luster in the second half of 2026?
The Fed usually raises interest rates when inflation is too high and cuts them when inflation cools. It aims to keep inflation below 2%, but the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) price index both reached year-over-year inflation rates of 3.8% in April. That represented their highest levels in three years.
High oil prices -- which will likely remain elevated as the Iranian conflict drags on -- are keeping inflation red-hot. In addition to higher gas prices, high oil prices are driving up the costs of materials, labor, and logistics across a wide range of industries.
Most analysts believe the Fed will leave its rates unchanged this month rather than raise them. But it's highly unlikely that Kevin Warsh, the new Chairman of the Federal Reserve, will abruptly cut rates even though President Trump has repeatedly called for lower rates.
If the Fed leaves its rates unchanged, they probably won't directly impact gold's price. However, the ongoing war, trade conflicts, and other macro headwinds could still drive more investors to buy gold as a hedge against a market crash. Therefore, it could still gradually rise through the end of the year -- but it probably won't deliver any multibagger gains.
If that happens, the SPDR Gold Trust -- the world's largest gold ETF with $149 billion in assets under management -- is a simple way to profit from that trend without buying physical gold. Its gross expense ratio of 0.40% makes it pricier than other comparable gold ETFs. Still, it's backed by its own physical gold bars in London and is widely held by institutional investors.
Buying GLD or another gold ETF might be a prudent move to make ahead of the next Fed meeting, but it's not an essential one as long as interest rates hold steady.