Gold Prices Poised to Shine as Fed and Trump Face Interest Rate Reckoning

Commerzbank's Thu Lan Nguyen believes gold is poised to perform well as the Trump administration and Federal Reserve face a reckoning over interest rates. According to her, markets are pricing in a 90% probability of a rate hike this week, driven by expectations that persistent inflation pressures will force the Fed to raise rates.

The renewed tensions in the Middle East have pushed up oil prices and consequently, interest rate expectations more broadly. Despite this, gold prices have not come under significant pressure yet, reflecting markets hedging against an impending collision between the Federal Reserve and the Trump administration.

Nguyen notes that since President Donald Trump's election win nearly two years ago, he has aggressively lobbied the Fed to lower interest rates to support the economy. However, expectations shifted dramatically after the U.S. and Israel went to war with Iran, causing significant disruptions to the global energy supply and pushing inflation pressures higher.

The Federal Reserve is increasingly under pressure to raise interest rates as a result of persistently elevated inflation, while President Trump has threatened extreme measures should the Fed fail to cut rates. This has led Nguyen to speculate that this may be one reason why the U.S. dollar remains under pressure despite bond yields reaching their highest levels since before the 2008 Great Financial Crisis.