Gold's Rate Cut Dilemma: A Contrarian Play Ahead of the Fed's July Crossroads

The U.S. labor market has been a rollercoaster in Q2 2025, with nonfarm payroll (NFP) data revisions and mixed signals creating fertile ground for contrarian investors. As the Federal Reserve faces a pivotal July meeting—where it could either reaffirm its pause or signal a rate cut—the volatility in gold prices presents a compelling opportunity. Here's why now is the time to buy GLD, the flagship gold ETF, and how recent data backs this contrarian call.

NFP Volatility: A Gold Catalyst in Disguise

Recent NFP reports have been anything but stable. March's figure was revised down by 65,000, April's by 30,000, and May's showed a slowdown to 139,000 jobs—a combined 95,000 downward adjustment since January. This volatility isn't just noise: it reflects uncertainty around trade policies, federal workforce cuts, and uneven sector growth.

The inverse relationship between NFP surprises and gold prices remains intact. When NFP data underperforms expectations, gold typically rallies—especially in the first 15 minutes post-release—due to fears of economic softness. For example, during Q2 2025, gold surged an average of $7.20 in the 15 minutes following weak NFP prints, while strong reports triggered declines of $5.20. This dynamic creates a short-term trading edge: weak NFP data in the coming weeks could push GLD above $3,400, with traders underestimating the market's overreaction to Fed pause speculation.

The Fed's Crossroads: Pause or Cut?

The Fed's June statement reaffirmed its “wait-and-see” stance, but the July meeting could shift the narrative. With inflation cooling to 4.2% and GDP growth projected at just 1.6% for 2025, the case for a rate cut is mounting. Historically, gold has thrived during Fed easing cycles: in the three months following the last two rate cuts (2020 and 2022), GLD rose by 14% and 9%, respectively.

However, current market positioning suggests complacency. Despite rising odds of a July cut, speculative longs in gold futures hit 187,905 contracts in June—the highest since 2011. This overcrowding creates a “fear of missing out” (FOMO) bubble, but it also sets up a contrarian play: buy the dip when Fed-dovish hopes are tested. If the July meeting delivers only a pause, gold could briefly retreat—but the underlying macro backdrop (slowing growth, central bank purchases) ensures a rebound.

Why GLD Now?

• Technical Setup: GLD is trading near $3,300, a 20% discount to its 2020 peak. A breakout above $3,400 would signal a return to its 2024 uptrend.
• Fed-Driven Volatility: The July meeting's uncertainty means gold's price swings will amplify. Traders can use options (e.g., buying calls with a $3,500 strike) to profit from the anticipated volatility.
• CFTC Overcrowding: Extreme long positioning often precedes reversals. In 2011, a similar crowded gold trade collapsed 45% over three years—yet this time, central banks are still net buyers, tempering the downside.

Risk Management: Navigating the Fed's Uncertainty

• Entry Point: Buy GLD at $3,300, with a stop-loss below $3,200.
• Target: Aim for $3,450 by mid-July, with upside to $3,600 if the Fed signals a cut.
• Alternative Play: Use inverse ETFs (e.g., DGZ) to hedge against Fed hawkishness, but prioritize long exposure given the Fed's easing bias.

Conclusion: The Fed's July Call Will Decide Gold's Fate—Position Now

The Fed's July decision is the linchpin for gold's next move. While markets are pricing in a pause, the data—from weak NFP revisions to soft GDP—supports a cut. For contrarians, this is a rare moment to buy GLD at a discount, leveraging both the inverse NFP-gold relationship and the Fed's eventual pivot.

The Fed's July crossroads is a “sell the rumor, buy the fact” moment. If the market overreacts to a pause, gold's pullback will be a buying opportunity. If the Fed cuts, GLD will surge. Either way, the contrarian who acts now stands to profit.

Joe Weisenthal
June 19, 2025