According to TD Securities strategist Bart Melek, the Federal Reserve's latest FOMC decision to keep the overnight rate steady, combined with the recent Iran-related oil shock, is pushing the central bank toward a neutral or even restrictive policy bias, which is delaying any anticipated rate cuts [1]. Melek highlights that four Federal Reserve officials voted against a post-meeting statement that suggested the next interest rate move would be lower, signaling to the gold market that the Fed is shaping expectations for a neutral bias to take hold [1].
Melek further notes that if the oil shock persists into June, there is a risk that the Fed's next move could be a rate hike, contrary to the previously expected series of cuts before the Iran conflict began [1]. He emphasizes that inflation pressures driven by the situation in the Strait of Hormuz are now firmly embedded in both market and Fed psychology, making a rate cut in the near term very unlikely [1]. According to Melek, crude oil prices would need to stabilize $5–10 below current levels for inflation pressures to begin reversing [1].
The strategist also points out that as the conflict continues and crude prices potentially rise further, incoming Fed Chair Kevin Warsh is unlikely to cut rates anytime soon [1]. This environment is expected to keep yields high and may even push rates into restrictive territory if energy prices spike further, which undermines gold in the near term before any eventual policy pivot [1].
CONCLUSION
The Federal Reserve's current stance, influenced by ongoing geopolitical tensions and elevated oil prices, is expected to keep interest rates high and delay any rate cuts. This scenario is seen as negative for gold in the near term, with the potential for further rate hikes if inflation pressures persist.