Powell’s Pause: Divergence, Demand, and Gold

Here's what the latest FOMC decision means.

As we expected, at the conclusion of today’s June 17-18 FOMC meeting, the Federal Reserve held its benchmark rate at 4.25-4.50%.

Gold dipped below $3,400/oz, but is still beating out nearly all other asset classes this year. That’s because the combination of geopolitical risk and Fed inertia are converging amid mounting global tensions and deteriorating economic signals.

The Fed cited progress on inflation but warned that elevated services prices and wage stickiness remain, as Fed Chairman Jay Powell noted that “wage growth has continued to moderate while still outpacing inflation.” Powell acknowledged that rising energy prices could complicate the Fed’s outlook given the situation in the Middle East.

Brent crude surged more than 7% last week to over $74/barrel in the aftermath of “Operation Rising Lion” with Israeli strikes on Iranian nuclear facilities and Iran’s retaliatory strikes. Prices eased slightly this week, but the spike triggered renewed fears of broader conflict.

While the Strait of Hormuz remains open, JPM Chase suggested a sustained oil shock could lift headline CPI by up to 1.7 percentage points.

In this context, the Fed's decision to hold steady looks less like caution and more like passive delay. At his May 7 press conference, Powell said the Fed would remain “data-dependent” and “not reactive to headlines.”

Today, he held that stance through the June FOMC meeting despite growing pressure to move, saying, “No one holds these rate paths with a great deal of conviction. And everyone would agree that they’re all going to be data‑dependent.”

While policymakers stall, markets continue repositioning into hard assets – for good reason.

Beneath the surface, the U.S. economy is slowing. First-quarter GDP was revised to a -0.2% contraction. Initial jobless claims remained elevated at 248,000 last week, marking the highest 4-week moving average since August 2023. Continuing claims are stuck around 1.9 million. Hiring trends have softened.

With growth slowing and job data softening the drag on the real economy is widening.

That’s why markets are ahead of Powell. Fed Funds futures now price in nearly 100 basis points of rate cuts by year-end, which we signaled for readers far in advance. The two-year Treasury yield sits at 3.9% already implying a 50-75 basis point cut. Those two signals indicate markets see more easing than the Fed originally forecast as inevitable, and it’s only a matter of timing and degree.

Global Cuts, U.S. Holds, Gold Bid Builds

Globally, central banks have been easing since last year – and they’ve kept going in 2025. On June 5, the European Central Bank cut its deposit rates by another 25 basis points, making it 75 basis points this year, and the Bank of England eased 25 bps in May.

The U.S., by contrast, remains firmly on hold – having made no rate cuts in 2025. That divergence is shaping capital flows, currency positioning, and demand for gold.

The political climate reinforces that situation. President Trump publicly criticized Powell's rate policy on June 12, stating, “I may have to force something,” and calling Powell a “numbskull.” Powell had addressed this kind of pressure weeks earlier, in his May 7 post-FOMC press conference, where he emphasized that the Fed “cannot be reactive to headlines” and must remain “data dependent.”

Not to be outdone, Trump doubled down suggesting today, when speaking to reporters at the White House, that “maybe I should go to the Fed,” he said. “Am I allowed to appoint myself at the Fed? I’d do a much better job than these people.”

That’s certainly one way of pushing back. But it underscores how tightly the Fed is boxed in. The U.S. central bank is balancing White House criticism, a softening economy, and Powell's dogmatic attachment to maintaining a 2% inflation target.

Gold is reacting to the Fed's inaction on one level but also to the pressures growing beneath the economic and geopolitical surface. The longer the Fed policy holds steady while economic signals decline, the more that tension gets priced into gold's trajectory. What we’re now left with is a policy regime caught between old inflation-fighting narratives and the new reality of economic fatigue sprinkled with elements of ego.

While Wall Street debates policy language, central banks around the world continue buying gold. The People's Bank of China increased its gold reserves for the seventh consecutive month. Poland's holdings now exceed those of the European Central Bank. Countries from Azerbaijan to Iran are steadily increasing their allocations. This ongoing reserves repositioning is a reaction to geopolitical structural risks, not just short-term yield levels.

At the same time, supply remains constrained. Global exploration budgets dropped 7% last year. New permitting remains slow. And recycled supply hasn't been enough to close the gap. According to the World Gold Council, Q1 demand reached its highest level since 2016 across jewelry, investment, and central bank channels – but supply remained short. We're seeing a structural deficit of around 100 tonnes per quarter. That imbalance is unlikely to be resolved anytime soon.

So, gold is well positioned, even without a Fed rate cut. The ongoing Fed pause itself is revealing. It indicates that policymakers recognize economic risks but haven't acted upon them. It also tells us that inflation is no longer the sole concern but that easing in the face of political friction and trade volatility is complicated. That kind of limbo is what drives long-duration safe-haven and U.S. policy and currency diversification bids.

That's why, it's worth considering strengthening core gold exposure. For some investors, that could mean adding to positions in broad vehicles like iShares Gold Trust (IAU) or VanEck Gold Miners (GDX) ETFs.

For others, it may be about investing in the miners positioned to supply gold into this growing demand cycle. In our Founders+ Small Cap Distortion Monitor issue last week, we highlighted one such name – and we've been tracking others across our Prinsights Pulse Premium monthly issues as part of this broader positioning theme.