Gold Could Soon Break Record High Despite Powell’s Hawkish Stance, with a Huge 2026 Ahead—But at the Expense of Stocks

While the war between Iran and Israel has had a relatively muted effect on gold prices, Federal Reserve Chair Jerome Powell’s hawkish tone on Wednesday temporarily dragged the metal lower. Yet several powerful forces—bullish technical signals, intensifying risks around Iran’s nuclear ambitions, and President Trump’s push for aggressive rate cuts—are aligning to suggest that gold could soon break record highs. They also point to 2026 as an even more explosive year for the metal—though it may come at great cost to equities.

Technical analysis doesn’t lie. Since mid-May, gold futures have formed a “high–lower high–higher” setup. The metal remains below its April record of $3,509, as bullish sentiment builds without a decisive trigger. The initial phase of the Israel–Iran war pushed gold higher, but prices quickly retraced as markets bet the conflict would remain contained—similar to the Russia–Ukraine war, which had only short-term effects on the global economy.

Now, gold is once again testing a crucial support level around $3,350. From here, we’ll either see a renewed bullish breakout—or the end of the rally cycle. Signs point to the former—and that’s where things could turn more dangerous.

President Trump has vowed to force Iran into “unconditional surrender” and is weighing military action to dismantle its nuclear program. However, with no signs of diplomatic engagement and escalating tensions in the Middle East—particularly as Israel continues to strike Iran with high casualties—Iran is unlikely to compromise quickly and may even respond aggressively.

This means further military conflict remains a real possibility. Considering Iran’s nuclear ambitions have developed over more than 75 years, it’s premature and overly optimistic to assume the country won’t attempt to leverage its nuclear capabilities to shock global markets. While the probability of such escalation remains low, investors should not dismiss it entirely. The lack of willingness from the U.S. and Israel to pursue dialogue, relying instead on displays of military force, could provoke irrational and unpredictable actions from Tehran.

Geopolitical chaos may be the least predictable but most explosive driver for gold. Beyond geopolitics, gold’s primary catalyst remains monetary. The commodity’s price is inversely tied to the U.S. dollar, and the dollar's fate is increasingly entangled with both Fed policy and Trump’s agenda.

Despite softer inflation and a cooling labor market, Powell stuck to a hawkish script on Wednesday, citing potential tariff-driven inflation as a reason to delay cuts. Still, the Fed’s dot plot suggests two 25-basis-point cuts remain on the table this year—highlighting internal uncertainty.

Ironically, Trump may be right in calling Powell “Mr. Too Late.” Tariffs took effect in April, but May CPI came in at a modest 2.4% year-over-year. This suggests Powell may indeed be lagging on rate cuts. With the broader economy showing signs of slowing and inflation consistently coming in below expectations, the Fed should adopt a more accommodative stance—especially as it trails behind the ECB in loosening policy. If upcoming data continues to show contained inflation—partly because retailers may absorb the tariffs under political pressure—the Fed will face even more urgency to act. Assuming two rate cuts occur this year, that would likely weaken the dollar, providing support for gold prices.

Another downside of Powell’s reluctance to cut rates is the added burden on the U.S. national debt, which is now nearing $37 trillion. Keeping rates elevated increases the interest payments on U.S. Treasuries, pushing the debt trajectory toward increasingly unsustainable levels. Combine that with Trump’s proposed massive spending—his so-called “big, beautiful bill”—and the fiscal deficit could accelerate, placing even more pressure on the dollar. In other words, whether the Fed cuts rates or not, dollar devaluation seems inevitable—and that could be a major catalyst for gold.

Looking ahead to next year, caution is warranted. Powell’s term as Fed Chair ends in May 2026, and Trump could usher in an ultra-loose monetary era. The president is expected to appoint more dovish Fed officials and may even push for aggressive money-printing measures. Although Trump initially nominated Powell, their relationship deteriorated when Powell refused to follow Trump’s policy demands—a mistake Trump is unlikely to repeat. Looser monetary policy would align with Trump’s agenda and support his MAGA narrative. However, such "punitive rate cuts" could make the U.S. economy highly vulnerable to runaway inflation and ballooning deficits. Ultimately, the resulting dollar devaluation could drive gold to new record highs—a scenario Trump may actually welcome, given the U.S. holds the largest official gold reserves in the world.

Whether it’s renewed Middle East turmoil, delayed Fed action, or Trump reshaping monetary policy, the consequences could be painful for equities. As inflation and debt concerns shift from hypothetical to real, Trump’s unpredictable rhetoric could shake investor confidence and destabilize markets. In such an environment, global central banks may turn to gold as a safe haven.

Gold’s future looks increasingly bright—possibly even record-breaking. But the road there may come with significant collateral damage, especially for U.S. stocks.