Is Gold an Investment or a Safe-Haven Asset?
It all comes down to whether you believe gold is an investment or a safe-haven asset. If I had asked you in late January, what would you have done if the Fed took one or two rate cuts off the board in 2026, you would have probably said that news was bearish and may have even taken profits in gold. Guess what, the Fed may have said that in some way on January 28 when it released its monetary policy statement and Fed Chair Powell spoke. The reaction: gold topped at $5602.23 the next day.
Fed Minutes Show Near Full Agreement to Hold Rates, Mixed on Inflation
Flash forward to yesterday’s minutes. January’s minutes showed Fed policymakers were in near full agreement to keep the benchmark interest rate on hold. Policymakers were mixed, however, with how to deal with inflation. Some considered hiking rates if inflation persists. Some thought cutting rates while inflation was elevated was a bad move.
According to the CME’s FedWatch Tool, no one thinks the Fed will cut rates in March and the odds of a rate cut in June after the minutes is about 50.4%.
Three Navy Fleets Off Iran’s Coast, Yet Gold Shows Muted Reaction
Let’s now look at the safe-haven side of gold. If I had told you a month ago that the U.S. had parked three Navy fleets off the coast of Iran including its largest warship and both sides were readying for attack, you would’ve said that’s bullish. Well, we are in this situation now and gold is showing little reaction today after yesterday’s 2% gain.
Conditions Have Changed—A Different Type of Trader Controls Gold Now
Looking ahead, I’m not saying that gold can’t spike higher if the U.S. attacks Iran and a war begins. What I’m trying to point out is that conditions have changed from just a month ago and a different type of trader is in the gold market. Let’s face it, that recent sell-off in gold hurt a lot of small speculators. Additionally, the CME raised margins on gold futures and we have an ongoing Asia holiday. But I think the biggest influence on gold is the uncertainty surrounding the timing of the Fed’s first interest rate cut in 2026. Until this situation is cleared up, gold could remain in a range.
Rate Uncertainty Trumps Geopolitical Risk for Now
We expect this consolidation period to possibly extend into June when the new Fed Chair takes over, but we’re also open to periodic speculative swings due to thin liquidity. However, the price action suggests traders are more concerned about the direction of interest rates than geopolitics at this time. Essentially, the safe-haven bid isn’t strong enough right now to overcome the “no rate cuts” reality, so gold is still consolidating.
