Against the backdrop of a profound adjustment in the global economic landscape, the linkage between the direction of US monetary policy and the gold market has become increasingly prominent. The fierce disagreement within the Federal Reserve on the timing of interest rate cuts, the chain reaction caused by the Trump administration's tariff policy, and the subtle changes in global capital's confidence in US dollar assets have jointly shaped the new positioning of gold as a core asset. From the central bank's gold purchase boom to the surge in market demand for risk aversion, gold is evolving from a traditional crisis hedging tool to a strategic allocation target for coping with geopolitical economic uncertainties.

1. The Fed’s interest rate cut game: the balancing act between the labor market and inflation

Policy differences within the Federal Reserve are becoming a key variable that stirs the market. Board member Christopher Waller and Vice Chairman Michelle Bowman publicly called for a 25 basis point rate cut at the July 29-30 interest rate meeting. The core basis is that the labor market has shown signs of weakness on the "dangerous edge" - the momentum of economic growth has slowed significantly, with only 1% growth in the first half of 2025 and only 1% growth in the second half of the year. It is expected that "risks will rise and fall from the target." Waller emphasized that inflation is close to the target level of 2%, and the upside risks are limited. The impact of tariffs on inflation is only temporary, and policy making should focus on "baseline inflation" rather than short-term disturbances.

This position is in stark contrast to that of most of his colleagues. Officials such as Board Member Adrienne Kugler and New York Federal Reserve Bank President John Williams are more concerned about the potential lasting impact of the severe tariffs announced by Trump in April on inflation, and advocate waiting for more data before deciding on the timing of a rate cut. Market expectations are discounted: futures contracts show that investors believe there is a higher chance of keeping interest rates unchanged this month, and the chance of a rate cut in September is slightly over 50%. It is worth noting that there is a political logic behind this disagreement. Waller is seen as a popular candidate for the Fed chairman after Powell's term ends next year, and Trump, who will nominate the next chairman, has been pressuring the Fed to implement an accommodative policy. This struggle between "policy independence and political demands" has further amplified the market's expectations of uncertainty about the interest rate path.

2. The chain reaction of Trump’s policies: de-dollarization and structural demand for gold

The Trump administration's global tariff policy is becoming an "invisible driver" of reshaping global capital flows. David Russell, head of global market strategy at TradeStation, pointed out that tariffs have accelerated the "de-dollarization process" - countries' dependence on the US final market and the US dollar continues to decline, and the trend of "returning to the 19th century trade model" has given rise to structural demand for gold. The central banks of the BRICS countries, especially China and India, have accelerated their gold reserves. The People's Bank of China's gold holdings have risen for eight consecutive months, becoming a core measure of the "de-dollarization strategy." The decline in the United States' own credit quality has further strengthened this trend. Moody's downgraded the United States' highest credit rating in May this year, marking the loss of the AAA rating from the three major rating agencies. The root cause is the continued expansion of the deficit and the pressure of unfunded liabilities such as social security.

David Miller, chief investment officer of Catalyst Funds, bluntly stated that this fiscal fragility makes gold "both a hedge against geopolitical conflict risks and a way to escape the erosion of fiat currency," becoming a core configuration of modern investment portfolios. The combined effect of tariff policies and fiscal deficits also directly affects the logic of asset pricing. Russell analyzed that "huge budget deficits or increased tariffs" would weaken the attractiveness of U.S. Treasuries, while the continued decline in 2-year and 10-year U.S. Treasury yields significantly reduced the opportunity cost of holding gold. In the first half of 2025, global physically-backed gold ETF inflows reached US$38 billion, the strongest performance since the first half of 2020, and the North American market became the main force of capital inflows.

3. Outlook for the gold market: Upward momentum under multiple scenarios

Data from the World Gold Council show that gold prices rose nearly 26% in the first half of 2025, hitting 26 all-time highs, continuing the strong momentum of a 20% increase in 2024. This performance stems from the resonance of a weaker dollar (the worst start to a year since 1973), interest rate range fluctuations and geopolitical tensions, with risks related to US trade policy contributing about 16% of the increase. Technically, the gold price held the $3,250/ounce mark in June, and the August delivery price closed at $3,359.10, showing breakthrough potential; the total holdings of global gold ETFs reached 3,616 tons, an increase of 397 tons from the beginning of the year. Although it is lower than the peak in 2020, there is still a large net space. The ability of COMEX futures to accumulate long positions also suggests that upward goods can be further accumulated.

The association outlined three scenarios for the second half of the year through the gold valuation framework: Under general expectations, gold may fluctuate sideways and rise slightly by 0%-5%, with an annual return rate of about 25%-30%. Due to the weakening of global GDP and the rise in inflation to more than 5%, central banks may cautiously cut interest rates before the end of the year (the Federal Reserve is expected to cut interest rates by 50 basis points); if the economy falls into stagflation or recession, safe-haven demand will push gold prices up another 10%-15%, closing up nearly 40% for the whole year. The diversification of central bank foreign exchange reserves and inflows of gold ETFs will become the main driving force; and if the conflict is resolved and the economy recovers, it may cause the gold price to retreat by 12%-17%, but the support of $3,000/ounce consumption will be strong.

Conclusion: Deterministic Configuration in Uncertainty

From the interest rate game of the Federal Reserve to the global wave of de-dollarization, from the weakening of US fiscal credit to the continued disturbance of geopolitics, gold is at the intersection of multiple favorable factors. The World Gold Council emphasizes that no matter how the macro environment evolves, gold is still a favorable target for tactical and strategic decision-making, supported by "a weaker US dollar, central bank gold purchases, and strong investment demand." This traditional wisdom of "hiding gold in troubled times" is being given new contemporary connotations in the context of contemporary policy uncertainty and geopolitical economic reconstruction.