Gold Rally Halted by Fed Rate Hike Expectations

The Federal Reserve's decision on interest rates has become the primary obstacle to a potential gold rally in 2026. The August jobs report showed an increase of 162,000 non-farm payrolls and an unemployment rate of 4.1%, indicating a stronger economy than investors had anticipated. This data has led markets to assign a high probability of a 25-basis-point Fed hike at the September 15-16 meeting.

Despite this, structural drivers for gold have not disappeared. The World Gold Council attributes the recent ETF surge to concerns around currency intervention, fiscal sustainability, Treasury-market stress, and strong price momentum. Asian demand is particularly important, with $2 billion flowing into Asian-listed funds in August, their strongest month since February.

The Fed decision will determine the next direction for gold prices. While a September hike is now the dominant market expectation, policymakers could argue that recent inflation has been influenced by temporary energy shocks and may not necessitate a prolonged tightening cycle.