Could the Fed and Bonds Be the Key to Gold’s Next Move?

Gold rose 1% on Friday, managing to offset what had otherwise been a sluggish trading week. However, despite the increase, the precious metal isn’t showing much momentum in the broader picture. As markets today are not overly focused on expectations for a Federal Reserve rate cut, we’re seeing a slight pullback from Friday’s moves.

So far, gold is down 0.2% on the day, to $3,366. Nevertheless, the technical chart shows that price action following Friday still leaves much to be desired.

Gold has been trading in a narrow range since the end of May, with buyers so far defending the 100-day moving average (red line). This maintains a more bullish sentiment, but at the same time, the consolidation phase signals a lack of momentum and energy for a more significant upward move.

In other words, gold is waiting for the next major move, which will come with a breakout from the current consolidation.

At the moment, much of the focus is on the Federal Reserve and its upcoming decisions. However, the key factor for gold will likely be the bond market. If the “soft landing” scenario holds and the Fed begins gradually cutting rates, that is already largely priced into gold. But if the bond market reacts sharply due to higher inflation data, the situation could become much more interesting.

Typically, higher interest rates are bad news for gold. However, it’s important to emphasize that real interest rates are what truly matter. That’s why tracking inflation data will be just as important as monitoring U.S. Treasury yields.