Fed Talks Cuts, Bibi Threatens Iran

Gold markets are now looking at an unusual alignment of bullish news overnight: Senior Federal Reserve officials are openly talking interest-rate cuts and criticising Powell's tariff inflation narrative. Benjamin Netanyahu also fired off a fresh threat at Iran. This combination of potential liquidity increase, and military conflict could propel gold even further.

San Francisco Fed President Mary Daly and Governor Christopher Waller both stressed that policy is still “restrictive” after 18 months of holding rates above 5 per cent. Daly said the economy is in a good place but warned that waiting too long to ease could leave the central bank behind the curve, adding that two quarter-point cuts this year look reasonable.

Waller argued that tariffs now being discussed in Washington would likely create only a one-off price bump, and that's something monetary policy can look through. With rates 150 basis points above his estimate of neutral, he said the Fed is just too tight and mentioned July as a viable starting point for an easing cycle, even if he remains in the minority on the committee.

Investors took the two remarks as confirmation that the debate inside the Fed has shifted from “if” to “when” rates should fall. Treasury yields slipped in late New York trade and fed-funds futures moved to price just over 50 basis points of easing by December, up from roughly 35 basis points the day before. The dollar took an immediate hit, giving gold a lift.

Bullion is famously yield-less, so its relative appeal rises whenever real or nominal interest rates decline. If the Fed begins cutting as soon as July, the opportunity cost of holding gold falls just as uncertainty over U.S. trade policy and a possible tariff wave clouds the growth outlook. Historically, periods where the central bank shifts from tightening to easing have coincided with some of gold’s strongest multi-month rallies.

Netanyahu's Threat

As markets digested the Fed news, a separate headline out of Israel added some fear. Prime Minister Benjamin Netanyahu set a 60-day deadline for the Iranian nuclear threat to be removed diplomatically, warning that otherwise it will be done another way.

This is a sign that direct military action could be back on the table by early September, which is right as the Fed may be finally delivering its first rate cut.