Gold expected to trade range-bound despite increasing bets of a Fed rate pause

Gold prices are expected to remain range-bound despite growing predictions of a pause in Federal Reserve interest rate hikes. The precious metal has been supported by the belief that the Fed will maintain steady rates as U.S. inflation and employment data have been weaker than anticipated. However, energy price volatility due to Middle Eastern tensions poses a potential cap on Gold's upward movement, as spikes in oil prices could reignite inflation and alter Fed rate expectations.

TD Securities strategists suggest that speculation surrounding a Fed rate pause this year has given a significant boost to precious metals. Modest inflation metrics, weak employment data, and stabilization in short-term yields have led traders to believe that the U.S. Dollar is on a downward trajectory. Consequently, asset managers have heavily invested in long Gold positions, although some traders have taken downside hedges against unexpected Oil-driven rate shocks.

Speculators predict that the Fed will not raise rates this year, causing interest rates on the short end of the curve to decrease and suggesting that the USD may weaken. While political concerns and labor market softness bolster the Fed pause narrative, near-term price gains for Gold are likely to remain limited. Ongoing tensions in the Persian Gulf keep energy supply lines at risk, and a surge in oil prices could reignite inflation concerns, forcing traders to adjust their policy expectations upward.

TD Securities forecasts a confined trading range for Gold in the near to medium term, with the metal expected to stay between $4,200 and $4,500 per ounce throughout early 2027. However, once inflation pressure eases, Gold may break out and rise to higher levels later in 2027.