Gold News: Gold Market Wobbles as FedWatch Slashes June Rate Cut to 33.5%

Gold Stalls Inside Tuesday’s Range as Rate Cut Hopes Fade

Spot Gold is edging higher mid-morning on Wednesday but inside Tuesday’s range, suggesting investor indecision and impending volatility. Bullish traders appear to be trapped near this week’s high at $5419.66 because of a shift in the narrative.

At 16:37 GMT, XAUUSD is trading $5150.86, up $62.02 or +1.22%.

Headline Traders Got Trapped at $5419.66

Many headline traders bought the opening on Monday after the war between the U.S. and Iran broke out over the weekend. They were betting that there would be enough safe-haven buying to drive gold to the record high at $5602.23. Instead, the rally stalled at $5419.66 as investors took profits on the spike in prices. This carried over to Tuesday’s session, when the market plunged 4.38%.

Rising Yields and a Strong Dollar Killed the Safe-Haven Bid

The main reason for the drop in gold prices was a jump in Treasury yields and a strong rally in the U.S. Dollar. Surprisingly, yields have surged since the war began as investors failed to recognize them as safe-haven assets. Instead, investors took a different route, focusing on the inflation risks.

Tim Baker from Deutsche Bank said he saw no signs of safe haven demand for Treasurys. He further added that the markets are more worried about inflation working against the Fed’s plan to lower interest rates. He also implied that it’s not unusual for bond yields to rise after a 10% rally in crude oil over two days.

The Three Pillars of Gold’s Rally Are Wobbling

Gold traders have to remember that its rally has been built by central bank buying, the notion that the Fed would cut rates 2 or 3 times in 2026 and speculation. We don’t really know what the central banks did in February, but that information will be released shortly. We can make an educated guess on the presence of speculators just based on the trading volume. But we’re not sure about any Fed rate cuts in 2026 anymore.

FedWatch Tool Shows Rate Cut Odds Collapsing

Based on the CME’s FedWatch tool, we do know the Fed is not expected to cut rates at its March meeting in two weeks. Currently, traders are 97.3% certain the Fed will leave rates unchanged. As for June, the chances of a 25 basis point rate cut have fallen to 33.5%, down from about 50% a week ago. The chances of the Fed leaving rates unchanged is now at 62.8%.

A Prolonged War Could Put a Rate Hike Back on the Table

Gold traders are likely reacting to the drop in the chances of a June rate cut. There is likely to be an even bigger drop in gold prices if a prolonged war in the Middle East keeps oil and gasoline prices elevated long enough to trigger a jump in inflation. If this becomes the case, it will be hard to argue for a Fed rate cut even after Trump’s hand-picked Chairman Kevin Warsh takes over. Depending on how long it takes to bring oil back to pre-war levels, we may even see some arguing for a rate hike.

Longer-Term Picture Still Bullish but Short-Term Adjustments Needed

The longer-term picture remains bullish for gold especially if it continues to be supported by central bank buying. However, since gold is also an investment and not only a safe-haven, over the short-run, we have to allow investors to make position adjustments if their buying models were based on multiple rate cuts this year.

More Information in our Economic Calendar.