After the June FOMC meeting, is there still room for gold and copper? [Dapeng Talks, Episode 2]

Waller’s Policy Foundation: Hawkish First, Then Turning is the Baseline Judgment

Hello everyone, this is our second episode, and I'm glad to see you all again. Let's start with the June FOMC meeting. There are particularly intense divisions in the market regarding Waller’s policy stance. U.S. equity investors mostly believe he’ll eventually turn dovish, while bond investors still recognize his hawkish signals. This division itself also illustrates that the current U.S. economy is not a simple traditional business cycle logic, with changes on the industrial side playing an increasingly important role.

My assessment is that Waller’s policy trajectory will be hawkish at first and then turn: show a hawkish stance in his early tenure, and after a certain turning point, return to a rate-cutting path. I am relatively certain about this general direction, but I am uncertain about two things: first, the specific timing of this pivot, and second, his tolerance for rising interest rates and falling markets.

There are two reasons for this judgment. First, it is routine for a new Fed Chair to set hawkish expectations early on. Recall 2018, when Powell just took office—he also said he wanted to lift rates above the neutral rate. In the end, after the credit market went wrong in December 2018 and the money market liquidly problem occurred in September 2019, he quickly turned toward easing. Waller now appears even more hawkish than Powell was back then, but inflation is already at a high level, the absolute price level is not low, and an immediate dovish turn isn’t realistic. Second, his policy actions themselves leave some flexibility. On the one hand, he places “price stability” at the end of the statement, showcasing a hawkish posture; on the other, he introduced trimmed mean PCE, a new inflation metric. After excluding highly volatile components, long-term inflation is at just 2.4%, which looks far better than the surface data. If he truly wanted to be as aggressively hawkish as Paul Volcker, there would be no need to bother changing inflation indicators.

Statement Significantly Shortened—Background is a Shift in Communication Strategy

This policy statement is two-thirds shorter than in April, with all the forward guidance sections deleted. The entire statement is left with just three blocks: the current rate decision, the present economic situation, and a commitment to the 2% inflation target. Simply put—it discusses only the present and objective, not the future.

This reflects Waller’s adjustment of the Fed’s communication style. Since 2018, Powell has been enhancing communication with markets—the advantage is transparency, it gives clear market guidance. The problem is also obvious: once the Fed says its targets too explicitly, the market prices to that target. When the next geopolitical conflict or supply chain disruption occurs, previous commitments inevitably become passive, and the market repeatedly questions policy credibility.

Waller chose another path: do not proactively provide a clear roadmap, observe how the market reacts to economic data, then adjust policy. This does amplify market volatility, but also leaves plenty of space for policy reactions after the fact. Many think this means he doesn’t care about the market—actually, that’s not true. Waller started out at the Fed in market communications, became famous during the 2008 Financial Crisis for market communication skills, and continued to be close with industry and financial circles during his time at the Hoover Institution. There’s no way he does not care about market responses. It's just that, given so many disturbances, whoever sets expectations first will be passive later. So he deliberately gave up forward guidance to gain more flexibility to respond to volatility.

Dot Plot Surprised the Market With Hawkishness, but the Rhythm Overreacted

This time, the hawkishness of the dot plot did indeed exceed prior market expectations. Compared with the “hold steady in 2026, three cuts for 2027-2028” easing script that the market bet on at the end of last year—even though the March dot plot raised the 2026 median to 3.4%, the actual dot plot shows that in 2026, half the members support a hike, the other half support no change or a cut (9 votes each; Waller himself did not vote, consistent with his critical stance toward the dot plot); the 2027 median is flat. Both are more hawkish than the market expected.

Of course, there are also moderating signals: 2028 still sees two cuts, long-term neutral rate remains at 3.1%. This suggests members still view current rates as in a restrictive range; the long-term space for rate hikes has not increased. Thus, two-year yields rose much more than longer-term yields—the whole curve flattened bearishly. Essentially, the pace of rate hikes was brought forward, not the scope of long-term hikes expanded.

Now, rate futures are pricing in a 30% chance of a hike in July, 45% in September, close to 90% within the year. My view is this rhythm is overdone. On the one hand, when members made the inflation forecast, the Iran agreement was likely not yet settled; oil prices have since dropped, gasoline prices have also retreated, and future inflation data may be revised downward. Importantly, so far, oil’s rise has not passed through to core inflation; in the past three months, super-core inflation has hovered between 0.1% and 0.2%—not much pressure. On the other hand, the jobs market just shows nascent signs of recovery. Unemployment is only 0.2 percentage points lower than at the start of the year; the employment diffusion index is improving, but still near twenty-year lows in absolute terms. In this situation, there is no need to tighten policy too rapidly.

My own judgment is that two hikes in 2027 would be a more reasonable pace, but these should wait until the jobs market improves endogenously and wage inflation stabilizes—more in line with the Fed’s consistent operating habits.

Threshold for Rate Cuts: Watch Waller’s Chosen Inflation Metric

To judge an official as hawkish or dovish, the key is to see whether inflation or employment comes first. This time, placing “price stability” at the end of the statement already makes short-term inflation the priority. Waller is now promoting the trimmed mean PCE indicator, so the market must follow this metric. Since he switched to a metric closer to 2%, if a rate cut is to happen, it likely will wait for this indicator to drop below 2%.

From an inflation structure perspective, rent carries a high weight in U.S. inflation figures; past years’ trends never indicated a large-scale rate hike was necessary. After 2024, the U.S. economy’s K-shaped divergence becomes increasingly evident, with AI investments playing a larger role; traditional and emerging industries show mixed fortunes, but the real estate and rental market have never signaled overheating.

The market actually began pricing “monetary policy not as dovish as previously thought” in the first half, which was the biggest change in expectations. My baseline assumption remains: as long as there are no major new shocks, inflation will gradually slow in the second half of this year through the first half of next year, and we’ll see Waller turn at some point. Of course, risk exists—if he really takes a Volcker-style aggressive rate hike path, market shocks will be large. I just think the likelihood is low, otherwise, he wouldn’t bother to change inflation metrics.

From an industry and social perspective, the tech sector and entrepreneurs certainly dislike rate hikes; higher financing costs harm everyone. Actual concern about inflation comes from the general populace, worried about high prices impacting elections. However, after the Supreme Court’s ruling on redistricting in May 2026, the probability of a Republican House win has risen, lessening these constraints somewhat.

Two Drivers for Market’s Six-Month Reversal in Expectations

From December 2025 to June 2026, the market shifted from expecting three rate cuts later in the year to expecting one or two hikes—the core came down to two variables.

The first is oil prices. By late 2025, everyone was bearish on oil, but in about half a year, prices nearly doubled—directly pushing up inflation expectations.

The second is AI capital expenditures, which maintained 60%+ high growth, providing strong support to the overall economy.

FOMC voters supporting rate hikes have both fundamental economic considerations and a desire to uphold Fed independence. Both matter. With current data, it’s not yet the time for a rate cut; taking a stricter public stance, letting the market raise rates itself and dampen total demand, makes it easier to cut later on.

By the current approach, inflation may not return to 2% until after 2027—a credibility challenge for the Fed, but the moment for a pivot will come, just as it did for Powell. Thus, for commodity traders and investors watching for weaknesses in traditional industries, the best strategy is to wait for the pivot—don’t rush to take positions early. On the one hand, policy direction is lacking clarity and early entry is risky; on the other hand, even if inflation eases, it’ll be hard to see PCE fall to 2% this year. It’s safer to wait for a clear signal before acting.

Gold: Core Weakness is the Reversal of Rate Cut Expectations

Now, let’s talk about gold. After spiking at the beginning of the year, gold has been sluggish, with no obvious bullish technical signals. The key reason is continuous outflows from ETFs—especially after February 2026, when gold ETFs in the U.S. saw heavy selling.

Let’s walk through how American investors’ attitudes toward gold have changed over the past three years.

In the first half of 2024, U.S. investors had little interest in gold, generally wanting to wait for rate cuts before buying. Things truly picked up after July 2024: with Trump’s election odds surging and rate cut expectations materializing, the market perceived greater volatility, boosting gold’s allocation value.
April 2025 saw the fastest pace of U.S. buying into gold. At the time, tariffs drove up fiscal deficit expectations, and Powell said once the inflationary effect from tariffs passed, rate cuts would resume. Gold therefore had both the rate cut and fiscal expansion logic in play, making for a stellar annual performance.

From June 2024 to Q1 2026, global gold ETF inflows were high, led by U.S. money. After February 2026, net outflows were almost entirely from American investors.

American investors sell gold for two reasons. First, rate cut expectations completely reversed—shifting from three cuts to potential hikes, removing the main reason to hold gold. Second, American funds have typically traded gold in two stages: “buy before rate cuts, sell after;” this cycle had reached the point for profit taking, so naturally they reduced positions.

When tariffs set in during 2025, some long-term allocation funds entered the market; their outflow is slower, so we see holdings slipping gently from the January peak, not collapsing all at once.

On the central bank side, Q1 2026 buying was weaker than in 2025. During the March geopolitical tensions, countries like Turkey sold some gold for liquidity, and there was discounted selling in the Middle East. The People's Bank of China continued to buy, but overall central bank buying support was weaker than in 2025.

Long-term Risk is AI, Short-term Opportunity Awaits a Turning Point

The long-term allocation value in gold remains—diversification logic has not disappeared, and the main long-run driver remains whether the Fed resumes rate cuts.

The greatest long-term risk to gold is AI-driven productivity diffusion. If in the next couple of years, AI rapidly improves productivity across most industries, legacy sectors can expand organically, eliminating the need for large-scale monetary/fiscal easing—gold’s value as a hedge will decline, similar to 2011. On the contrary, if AI’s impact stays concentrated in a few segments and the traditional economy still depends on low rates, gold will have further momentum.

In the short term, from June to September gold offers little in the way of opportunity; wait for the rate cut narrative to return, or fiscal policy changes by Q3-end. Of course, a “black swan” event would change things.

Also mindful of the Dollar Index—June 19th’s close showed a bullish crossover. High U.S. Treasury yields aren’t necessarily negative—they indicate a strong economy and risk assets can still rise. But a strengthening dollar is a concern, bringing exchange rate and capital flight pressures to emerging markets and suppressing gold demand.

Copper: Fundamentals Smooth, but Trading is Crowded

Now, a word on copper. Copper has performed much stronger than gold, with demand fundamentals benefiting both ways.

If AI brings productivity gains soon and the economy improves, copper demand is supported; if the economy is weak and relies on policy stimulus—via infrastructure or real estate—copper also benefits. Gold fears technical advancement and economic strength; copper is needed by both traditional and emerging industries, so price action is steadier.

Technically, copper’s chart looks decent, but there’s a caveat: speculative net-long positions in copper are at eight-year highs. This shows consensus is strong, trading is crowded, and prices are no longer cheap. For further upside, fundamentals must deliver or an upside surprise appears—otherwise it’s hard to break out.

The market is now awaiting tariffs as a catalyst. Current COMEX copper stocks are about 650,000 tonnes; if the U.S. raises copper tariffs, global stocks will flow into the U.S., directly lifting the COMEX price—this is the market’s prevailing anticipation.

June to September is copper’s traditional off-season, and with Fed policy remaining hawkish and macro headwinds, a large rally is unlikely. There’s no need to short, though, unless you are convinced of a Fed policy shock or systemic U.S. equity risk—otherwise, short certainty is low.
For copper to surprise to the upside in the off-season, there are two scenarios: (1) surprise tariff policy, driving restocking; (2) AI capital expenditure expectations moving even higher, with new demand completely offsetting old sector drag.

Long term, I still think copper’s bull market is not over. If there’s a clear pullback, that’s a chance to buy on weakness. U.S. manufacturing reshoring and China’s power system upgrades will drive sustained copper demand. Data center expansion is already pushing electricity consumption higher, electricity prices are rising rapidly, and future grid investment and electricity-related demand will only grow. Copper demand remains solidly underpinned.

Now, copper mining stocks are mostly trading near highs, consolidating in a range since January—essentially a tug of war between emerging demand and legacy sector decline, plus macro headwinds, awaiting the next catalyst. Once copper miners break above resistance, the next uptrend should be more certain.

Outlook for Geopolitics and China’s Economy in the Second Half

Finally, a word on geopolitics and China’s economy.

In the second half, geopolitical risk is likely to ease—positive for risk assets. The U.S. will gradually scale back in Iran, refocusing domestically. Whether for midterm elections or longer-term strategy, the overall direction is to tilt inward. Communication between China and the U.S. will remain relatively stable; no aggressive confrontation is expected.

Geopolitical easing will also help lower inflation, creating a better environment for future Fed rate cuts. The Russia-Ukraine conflict remains a long-term variable, and whether a future Trump administration will make new moves is worth monitoring.

As for China, the first half of 2026 saw strong performances in technology, diplomacy, and geopolitics; what’s weaker is consumption and domestic demand. Exports are resilient, so there’s no large-scale domestic stimulus—no grounds for criticism. Pressure on household balance sheets and real estate is real, but domestic demand is a long-term structural issue, not something short-term policy can quickly fix.

Global supply chain restructuring is a broad trend, and U.S. supply chain reshoring is basically irreversible. China has maintained exports via transit trade, but end demand remains highly U.S.-dependent. In the long run, activating its own domestic demand is the reliable path—key both for economic rebalancing and as external negotiation leverage.

Of course, before policy is set, it’s not suitable to make early, countertrend trades. Tech development and domestic demand boosting are not opposed; technological progress requires a large consumer market to absorb gains, and the domestic market still has great potential. The relationship is mutually reinforcing.

Both China and the U.S. are now pursuing internal transformation: China focuses on technology upgrade, the U.S. on supply chain substitution. Both sides are exercising restraint; fundamentally, both believe time is on their side, so there’s no rush to escalate tensions. This is the underlying logic for geopolitical stability in the second half.

Rhythm Disturbed, Main Direction Unchanged

Finally, a quick summary. This Fed meeting mainly introduced rhythm disturbances, but did not change the overall steady economic and monetary policy direction for the second half of the year.

Whether hikes happen before year-end or in 2027, these are minor neutral-rate adjustments, nothing like the aggressive hiking cycle of 2022. Back then, heat in the economy, high inflation, and low rates had the Fed chasing the cycle with rate hikes. Now, rates are near neutral. Good data—one or two hikes; weak data—two to three cuts. The moves are limited and won’t hit the market too hard.

The real thing to watch for is after the 2027 hike, if both the economy and inflation continue to rise and the Fed raises its long-term rate ceiling, that would be truly negative, with much greater impact on risk assets and commodities.

Focus on two directions going forward: (1) U.S. core inflation and employment data—will they cause fresh policy shifts? (2) The results of the five research groups at the end of the year—will they really change the Fed’s policy framework?

Short-term investors can be more cautious—no rush to add positions, wait for a clear signal before making a directional move. Mid-to-long term, moderate U.S. economic recovery, high rates, and a strong dollar will last a while longer, but debt and inflation risks remain unresolved. The market is simply waiting for the next catalyst.

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