Fed divisions intensify as gold price tussles at the $4,000 mark

　　When even the Federal Reserve is unsure of its direction, where is gold headed?

　　Divergence in Fed rate hike expectations has made the outlook for gold prices uncertain.

　　At midnight on July 30th (UTC+8), the Federal Reserve announced it would keep the federal funds rate target range unchanged at 3.50% to 3.75%, marking the fifth consecutive meeting without action. However, three dissenting votes have brought internal hawkish pressures to the forefront within the Fed.

　　This caused a shift in market dynamics. Before the decision was announced, spot gold briefly fell below the $4,000 threshold; after the announcement, gold prices surged sharply from around $4,040 to above $4,081, even temporarily surpassing $4,100 per ounce during trading. As of 15:30 on July 30, spot gold was quoted at $4,043 per ounce.

　　Jiang Xianwei, Senior Global Market Strategist at J.P. Morgan Asset Management China, analyzed for Yicai Global that although expectations for a dollar interest rate hike remain, the probability of the Fed keeping rates unchanged for the year is relatively high, and even if hikes occur, they are unlikely to be in continuous cycles. While dissent among Fed members increased at this meeting, most hawkish members are among the rotating bank presidents rather than the core decision-making body with longer tenures.

　　Louise Street, Senior Market Analyst at the World Gold Council, stated that in the second half of the year, investment demand is expected to drive an increase in gold demand, but the structure of that demand may change. Over-the-counter trading activity and Asian investment demand are likely to play an increasingly significant role, while Western interest in gold ETFs may be more closely tied to real US Treasury yields, expectations for US monetary policy, and movements in the dollar.

　　

　　Public information shows that this FOMC (Federal Open Market Committee) vote was 9 to 3, marking the first time three policymakers dissented in the same direction, all unanimously advocating for a 25 basis point rate hike.

　　At the same time, Federal Reserve Chairman Waller explicitly refused to call this a "pause" at the press conference, making it clear, "We will not hesitate to act when necessary," and emphasized that the 2% inflation target "will never be a soft target during this committee's term."

　　This has become a major force suppressing gold prices. Huatai Securities analyzed that the FOMC's inaction in July has, to some extent, diminished the Fed's credibility, inflation expectations have picked up again, long-term yields are rising, and the probability of a rate hike in September remains relatively high.

　　Shenwan Futures believes that, although the Fed kept rates unchanged, internal disagreements have intensified. Combined with frequent shifts in geopolitical headlines, market volatility remains high, and precious metals currently lack a clear trend driver at prevailing price levels.

　　Barclays expects that the FOMC will maintain rates within the current target range until the end of 2027. This projection is based on their baseline scenario that downward inflation pressure will re-emerge in the second half of 2026, creating conditions for the Fed to keep rates steady.

　　Brij Khurana, Fixed Income Portfolio Manager at Wellington Management, believes that Waller's policy framework logic is worth paying more attention to. Waller posits that there is no long-term trade-off between price stability and full employment—only by first achieving price stability can sustained full employment be realized. This framework differs from traditional monetary policy logic and means the Fed's policy decisions will be harder for the market to anticipate.

　　He Min, Fixed Income Investment Director at AllianceBernstein, analyzed that markets generally characterize the US economy as a "K-shaped" economy. With the boost from AI investment, the US economy remains in moderate expansion, but marginal diminishment should be monitored. Regarding inflation, recent increases have been mainly driven by rising energy prices in the CPI; excluding energy, the impact of other core factors on inflation is relatively stable. He Min anticipates the positive effect from AI on the US economy may diminish year by year starting in 2026.

　　

　　The internal discord within the Fed is being directly reflected in Wall Street’s gold forecasts, with target price differences between institutions reaching as much as $600.

　　Recently, Goldman Sachs sharply reduced its year-end 2026 gold price target by $500 to $4,900 from $5,400, characterizing its latest strategy as "tactically cautious." Goldman analysts warned that if the Fed does hike rates, "the demand for gold as a macro policy hedge could be undermined for an extended period." Goldman also noted that ongoing reserve diversification by emerging market central banks remains a core bullish factor.

　　UBS's global team remains optimistic for the mid-term prospect of gold, projecting gold prices to rise to $4,675 per ounce in 2026 and $4,800 per ounce in 2027. UBS believes that multiple dips in gold prices below $4,000 have attracted buyers, suggesting this level may be forming a technical support.

　　State Street Global Advisors is even more bullish. Gold Strategist Doshi believes Fed hawkishness has peaked, predicting that over the next six to nine months, gold prices could fluctuate between $4,750 and $5,500, with a 70% probability for this baseline scenario. State Street also points out there is strong support for gold between $3,750 and $4,000.

　　The World Gold Council, however, offers a neutral baseline scenario: if macro conditions remain relatively unchanged, gold prices might trade around $4,100 per ounce for the year, with a volatility range of approximately ±5%. The Council also notes that if geopolitical or economic conditions deteriorate, gold could stage a renewed rally.

　　

　　The robust momentum in gold prices earlier this year reversed course in Q2.

　　According to the World Gold Council’s Q2 2026 “Global Gold Demand Trends Report” released on July 30, with gold prices falling back from historic highs set at the start of the year, total global gold demand in Q2 was flat year-on-year at 1,269 tons; for the first half of the year, total global gold demand was up 2% year-on-year to 2,522 tons, equivalent to about $380 billion.

　　However, looking at the breakdown, global gold ETF, bar, and coin investments fell to 262 tons in Q2, with gold ETF net outflows of 45 tons, which became the main drag on investment demand that quarter.

　　This trend was also evident in the domestic market. In Q2, China's gold ETF outflows totaled RMB 20 billion (approximately $2.9 billion), making it the weakest quarter on record.

　　In April, there was a slight inflow into gold ETFs, but this was offset by May outflows and record outflows in June. The combination of fund outflows and falling gold prices caused Chinese gold ETF assets under management (AUM) to fall 20% over Q2, to RMB 243.1 billion (about $35.8 billion). Total holdings fell by 22 tons to 277 tons, 29 tons lower than the peak of 306 tons on March 18, 2026.

　　However, since mid-July there has been a reversal in capital flows. SPDR Gold ETF’s holdings rebounded from 999 tons on July 17 to 1,009.29 tons on July 29—an increase of over 10 tons in 12 days. On July 20, holdings rose by 4.57 tons in a single day, the largest one-day inflow since June 18.

　　Speculative funds “retreat first, then re-enter.” As of the week ending July 7, COMEX gold speculators reduced their net long positions by 1,964 contracts, to 114,854 contracts; but just a week later, positions increased by 4,294 contracts to 119,147 contracts, a five-month high; for the week ending July 21, net longs climbed further to 123,586, marking three straight weeks of gains.

　　In contrast to the sharp swings among short-term funds, long-term capital continues to flow in. In Q2, the world’s central banks and other official institutions increased gold reserves by a net 289 tons, up 62% year-on-year, with several central banks ramping up purchase activity.

　　Louise Street pointed out in the report that while global central banks will remain key buyers of gold, their pace of acquisition may be slightly slower than in the past four years. Meanwhile, high gold prices will continue to suppress jewelry demand, while consumers are inclined to hold rather than sell their gold, and there are virtually no signs of growth in recycled gold supply.

Editor: Zhu Henan