Gold's Rally Ahead of Fed Meeting: Safe Haven Demand and Rate Cut Speculation Drive Two-Week High

Gold surged to a two-week high of $3,255.01 per ounce on May 6, 2025, as investors flocked to the safe-haven asset amid escalating trade tensions and growing expectations of a Federal Reserve rate cut by June. The metal’s climb reflects a confluence of geopolitical risks, central bank policy uncertainty, and technical dynamics that could push prices toward their 2025 record of $3,500.05.

Trade Wars and Safe-Haven Demand

The immediate catalyst for gold’s rise was U.S. President Donald Trump’s announcement of a 100% tariff on overseas-produced movies, alongside threats to expand pharmaceutical tariffs. These moves reignited fears of a global trade war, driving investors into gold as a hedge against economic instability. Analysts noted that gold’s year-to-date gains of 29.17% (as of April 21) underscore its role as a “crisis asset,” particularly when geopolitical tensions escalate.

The May 6 high followed a retreat from gold’s April 22 all-time peak of $3,500.05, which had been driven by similar concerns. However, renewed trade anxieties, coupled with weak U.S. GDP data and softening labor market indicators, reignited buying momentum.

Fed Policy: The $3,500 Threshold

The June 17–18 Federal Open Market Committee (FOMC) meeting looms as a critical test for gold. As of early May, traders had priced in a 75% probability of a 25-basis-point rate cut, with weak economic data and inflationary pressures pushing the Fed toward easing. A rate cut would weaken the U.S. dollar, a key inverse driver of gold prices, and reduce the opportunity cost of holding non-yielding assets like gold.

Technical and Fundamental Factors

Technically, gold faces resistance near $3,350, a level breached only once in 2025. Analysts at Motilal Oswal expect prices to reach $3,371 by end-Q2 2025 and $3,509.55 by early 2026, citing persistent trade disputes and central bank demand. Central banks added 180 metric tons of gold in Q1 2025 alone, a sign of institutional confidence in the metal’s long-term value.

Risks on the Horizon

Despite the bullish outlook, risks remain. The U.S. dollar, hovering above 100, could strengthen if trade negotiations improve or the Fed softens its dovish stance. Additionally, rising Treasury yields—the 10-year note hit 4.23%—and reduced buying from China during its Labour Day holiday have tempered gains.

Conclusion: A Volatile Path to $3,500

Gold’s trajectory in the coming months hinges on two critical factors: the outcome of the June Fed meeting and the resolution of trade disputes. With a 75% chance of a rate cut and Motilal Oswal’s $3,509.55 2026 forecast, the metal is positioned to reclaim its $3,500 record if the Fed acts as expected.

However, volatility is inevitable. A stronger dollar or a delayed rate cut could stall progress toward the record. Investors should monitor the Fed’s Summary of Economic Projections on June 18—marked meetings like this one typically include detailed guidance—and track trade negotiations closely.

For now, gold’s 29.17% YTD gain and its status as a crisis hedge suggest it remains a compelling holding for portfolios seeking stability in uncertain times. The path to $3,500 is clear—but the Fed’s next move will determine if the journey continues.