The Federal Reserve's interest rate decision has sparked growing internal discord, casting uncertainty over the gold price trajectory. In the early hours of July 30, Beijing time, the Fed decided to keep the federal funds rate target range unchanged at 3.50% to 3.75%, marking the fifth consecutive pause. However, three dissenting votes brought the hawkish pressure within the Fed to the surface, altering market dynamics. Before the decision, spot gold briefly dipped below the $4,000 mark; following the announcement, the price surged from around $4,040 to above $4,081, even briefly touching $4,100 per ounce. As of 15:30 Beijing time on July 30, spot gold was trading at $4,043 per ounce.
Jiang Xianwei, a senior global market strategist at JPMorgan Asset Management China, noted that while market expectations for a rate hike persist, the probability of the Fed holding rates steady for the remainder of the year remains high. Even if a hike occurs, it is unlikely to initiate a continuous cycle. Although the number of dissenting committee members increased in this meeting, the hawkish voices are largely concentrated among the rotating bank presidents, rather than the longer-tenured core decision-making members.
Louise Street, a senior market analyst at the World Gold Council, observed that investment demand is expected to drive gold demand growth in the second half of the year, though the demand structure may shift. Over-the-counter trading activity and Asian investment demand are anticipated to play an increasingly prominent role, while Western market interest in gold ETFs may become more closely tied to real U.S. Treasury yields, U.S. monetary policy expectations, and the dollar's performance.
Rare Fed Divergence
Public records show that the FOMC vote was 9-3 in favor, with three policymakers unexpectedly voting against the decision, all advocating for a 25-basis-point rate hike. This marks the first time three members have dissented in the same direction. Meanwhile, Fed Chair Jerome Powell explicitly refused to label this as a "pause" during the press conference, stating the committee would "act without hesitation if necessary" and emphasizing that the 2% inflation target "will not be a soft target during this committee's term." This rhetoric has become a key factor suppressing gold prices.
Huatai Securities analyzed that the July FOMC's inaction has, to some extent, eroded the Fed's credibility, with inflation expectations rising again and long-end yields climbing. The probability of a September rate hike remains relatively high. Shenyin & Wanguo Futures noted that the Fed's decision to hold rates steady, combined with escalating internal divisions and rapidly shifting geopolitical news, has led to heightened market volatility, with precious metals lacking clear directional momentum at current levels.
Barclays expects the FOMC to keep rates within the current target range until the end of 2027. This forecast is based on its baseline scenario, which anticipates that downward inflationary pressures will resurface in the second half of 2026, thereby enabling the Fed to maintain its current rate stance.
Brij Khurana, a fixed income portfolio manager at Wellington Management, highlighted that the more noteworthy aspect is the policy framework logic of Fed Chair Powell. Powell's view that there is no long-term trade-off between price stability and maximum employment, and that sustainable full employment can only be achieved after price stability, differs from traditional monetary policy logic. This framework suggests that the Fed's policy decisions will become even more difficult for markets to anticipate in advance.
He Min, fixed income investment director at AllianceBernstein, analyzed that the market generally views the U.S. economy as a "K-shaped economy." With the support of AI investment, the U.S. economy is expanding at a moderate pace, but attention must be paid to diminishing marginal returns. Regarding inflation, the recent uptick is primarily driven by higher energy prices feeding into the CPI. Excluding energy, other core factors affecting inflation remain relatively stable. He Min predicted that the AI-driven boost to the U.S. economy could begin to diminish annually starting in 2026.
Wall Street's Bull vs. Bear Battle
The Fed's internal divisions are directly reflected in the divergent gold price forecasts on Wall Street, with target prices among institutions varying by as much as $600. Recently, Goldman Sachs significantly lowered its year-end 2026 gold price target from $5,400 to $4,900, a $500 reduction, and characterized its near-term strategy as "tactical caution." Goldman Sachs analysts warned that if the Fed actually raises rates, "demand for gold as a macro policy hedge could more persistently disintegrate." The bank added that ongoing reserve diversification by emerging market central banks remains a core bullish rationale.
UBS's global team still holds a positive outlook for gold's medium-term prospects, forecasting prices to rise to $4,675 per ounce in 2026 and $4,800 per ounce in 2027. UBS believes that gold's recent multiple tests of the $4,000 level, met with buying support, suggest this level may be forming a solid foundation.
State Street Global Advisors is more optimistic. Doshi, the firm's head of gold strategy, believes the Fed's hawkish stance has peaked and predicts gold prices will trade within a range of $4,750 to $5,500 over the next six to nine months, with a 70% probability for this baseline scenario. State Street also noted that gold has solid support in the $3,750 to $4,000 range.
The World Gold Council offers a neutral baseline scenario: if the macro environment remains largely unchanged, gold prices could trade around $4,100 per ounce for the rest of the year, with a fluctuation range of approximately ±5%. The council also noted that if geopolitical or economic conditions deteriorate, gold could regain its upward momentum.
Where is Gold's Bottom?
The strong gold price rally at the start of the year reversed course in the second quarter. The World Gold Council's 2026 second-quarter Global Gold Demand Trends Report, released on July 30, showed that as gold prices retreated from the record highs set at the beginning of the year, total global gold demand for the second quarter was flat year-on-year at 1,269 tonnes. Total global gold demand for the first half of the year rose 2% year-on-year to 2,522 tonnes, valued at approximately $380 billion.
However, from a structural perspective, second-quarter global gold investment, including ETFs, bars, and coins, fell to 262 tonnes. Among these, gold ETFs saw net outflows of 45 tonnes, which was the main driver of the decline in quarterly investment demand. This trend was also evident in the domestic market. In the second quarter, gold ETFs in the Chinese market saw outflows of 20 billion yuan (approximately $2.9 billion), marking the weakest quarterly performance on record. Small inflows in April were offset by outflows in May and a record outflow in June. The combination of fund outflows and falling gold prices led to a 20% decline in the total assets under management (AUM) of Chinese gold ETFs in the second quarter, to 243.1 billion yuan (approximately $35.8 billion). Total holdings fell by 22 tonnes to 277 tonnes, 29 tonnes below the peak of 306 tonnes on March 18, 2026.
However, since mid-July, there has been a reversal in capital flows. Holdings in the SPDR Gold ETF recovered from 999 tonnes on July 17 to 1,009.29 tonnes on July 29, accumulating an increase of over 10 tonnes in 12 days. A single-day increase of 4.57 tonnes on July 20 marked the largest daily inflow since June 18. Speculative capital initially retreated and then returned. In the week to July 7, COMEX gold speculators reduced their net long positions by 1,964 contracts to 114,854 contracts. But a week later, they quickly added 4,294 contracts to 119,147, a five-month high. As of the week ending July 21, net long positions further increased to 123,586 contracts, marking three consecutive weeks of accumulation.
In contrast to the volatile movements of short-term capital, long-term capital continues to flow in. In the second quarter, global central banks and other official institutions added a net total of 289 tonnes of gold reserves, a 62% year-on-year increase, with gold purchasing activity picking up in several central banks. Louise Street noted in the report that global central banks will remain significant gold buyers, though their pace of purchases may be slightly slower than in the past four years. At the same time, high gold prices will continue to constrain jewelry demand, while consumers are more inclined to hold rather than sell their gold holdings, resulting in little to no growth in recycled gold supply.
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