Gold's Range-Bound Struggle: How U.S. Trade Policy and Fed Signals Shape Safe-Haven Demand

The global economy in 2025 is a theater of contradictions. On one side, U.S. trade policies have escalated tariffs to levels not seen in decades, creating a patchwork of protectionism that threatens to erode global GDP by 1%. On the other, the Federal Reserve's tightrope walk between inflation control and economic growth has left gold—long a symbol of stability—trapped in a tug-of-war between tailwinds and headwinds. For investors, the question is no longer whether gold is a safe-haven asset, but whether its current trajectory offers a defensible position in a world of mounting uncertainty.

Trade Policy: A Double-Edged Sword for Gold

The U.S. has weaponized tariffs as a tool of economic leverage, with President Trump's administration imposing a 50% tax on steel and aluminum, and 15% on EU goods, while slashing rates with Japan to 15% and Vietnam to 20%. These moves have introduced volatility into global supply chains, pushing gold demand to 1,248.8 metric tons in Q2 2025—a 3% increase, driven entirely by investment inflows. Gold ETFs have seen their strongest six-month inflow since 2020, with 11 consecutive months of positive flows.

Yet the same trade policies that drive demand for gold also create a paradox. The tariffs have exacerbated inflationary pressures, which, while historically supportive of gold, also strengthen the U.S. dollar—a key headwind for gold prices. The Federal Reserve's acknowledgment of “persistent inflationary effects” from tariffs has added a layer of ambiguity. Investors are left to navigate a landscape where geopolitical tensions and trade wars fuel gold's allure, while currency dynamics temper its ascent.

Fed Signals: Stagflation and the Inflation-Interest Rate Dilemma

The Federal Reserve's June 2025 policy statement revealed a stark reality: a 1.7% GDP growth forecast and a 2.8% core PCE inflation rate—a classic stagflationary scenario. Historically, such conditions have been a tailwind for gold, which thrives when growth slows but inflation persists. Yet the Fed's balance sheet normalization—quantitative tightening—has kept the dollar strong, creating a drag on gold.

The Fed's 2% inflation target remains a fixed star in a turbulent sky. Despite rising inflation expectations, the central bank has maintained a 4.25% to 4.50% federal funds rate, with real interest rates (nominal minus inflation) still positive. This raises the opportunity cost of holding non-yielding assets like gold. However, gold's recent performance—up 26% since January 2025 to $3,500 per ounce—suggests that other forces, such as central bank demand and geopolitical risk, are overpowering the Fed's rate signal.

The Tug-of-War: Trade Uncertainty vs. Monetary Policy

Gold's current range-bound struggle reflects the competing forces of trade policy and Fed signaling. On one hand, tariffs and geopolitical tensions are pushing investors toward gold as a hedge against currency devaluation and economic instability. Central banks, notably in China, India, and Türkiye, have continued to accumulate gold, reinforcing its structural role as a reserve asset.

On the other hand, the Fed's inflation-fighting resolve—coupled with a strong dollar—has limited gold's upside. The U.S. dollar index, which reached 110 in April 2025, remains a key constraint. Yet even with these headwinds, gold's price resilience suggests that investors are prioritizing safety over yield. J.P. Morgan and Goldman Sachs, both bullish on gold, project prices could reach $4,000 by mid-2026, driven by central bank demand and a potential Fed policy pivot.

Key Catalysts: The Road to 2026

The remainder of 2025 and the early months of 2026 will be defined by three critical catalysts:

1. Fed Policy Decisions: The September 16–17 and December 2025 meetings will be pivotal. The FOMC's September meeting, associated with the Summary of Economic Projections (SEP), will reveal whether the Fed is prepared to ease policy in response to a slowing economy. A 100-basis-point easing by Q3 2025, as projected, could weaken the dollar and unlock gold's upside.

2. U.S. Election Dynamics: The 2026 midterms loom large. Trump's unpopularity could shift the balance of power to Democrats, but his influence over the GOP remains a wildcard. A potential escalation in trade tariffs or executive overreach could trigger a surge in gold demand as a hedge against political instability.

3. Trade Policy Escalations: The U.S. and China's 90-day tariff reprieve is a temporary truce. If tensions resurface, or if Trump's administration imposes new tariffs on strategic commodities like copper or lithium, gold could see a sharp rebound as a safe-haven asset.

Strategic Positioning: Is Now the Time to Lock In Exposure?

For investors, the current environment demands a nuanced approach. Gold's role as a hedge against inflation and geopolitical risk is well-established, but its performance is increasingly dependent on the Fed's stance and central bank actions. Here's how to navigate the uncertainty:

• Physical Gold and ETFs: With gold ETFs experiencing record inflows, a strategic allocation to physical gold or ETFs like SPDR Gold Shares (GLD) offers a liquid and accessible way to gain exposure. Given the Fed's potential pivot, the second half of 2025 could present a favorable entry point.

• Mining Equities: Gold mining stocks, while volatile, offer leveraged exposure to rising gold prices. Companies with strong balance sheets and low production costs (e.g., Barrick Gold, Newmont) could outperform if gold breaks above $3,700.

• Diversification Across Reserves: Central banks' continued shift from dollar assets to gold underscores the importance of diversification. Investors should consider indirect exposure to gold through sovereign debt or ETFs tracking central bank reserves.

The key is to balance defensive positioning with tactical flexibility. While gold's long-term fundamentals remain intact, its short-term trajectory is contingent on the Fed's policy path and trade developments. A staggered approach—buying dips in gold prices and hedging against dollar strength—could mitigate risk while capturing upside.

Conclusion: Navigating the Crossroads of Policy and Geopolitics

Gold's range-bound struggle is a microcosm of the broader economic crossroads we face. Trade policies are reshaping global supply chains, while Fed signals are dictating the terms of inflation and growth. In this high-uncertainty environment, gold remains a critical asset for those seeking to hedge against volatility.

The question for investors is not whether gold will rise—it will—but when and by how much. With key catalysts on the horizon, now is the time to lock in defensive exposure, not out of fear, but out of strategic foresight. The tug-of-war between trade and monetary policy may yet determine whether gold's current correction is a buying opportunity or a warning sign.