(Kitco News) – With the Iran war generating enormous volatility in energy markets and inflation expectations, the Fed will do its best not to make waves until September at the earliest, which means gold prices will likely be stuck in neutral until the fall if not early 2027, according to Colin Cieszynski, chief market strategist at SIA Wealth Management.
Cieszynski told Kitco News on Friday that uncertainty surrounding price stability and the Middle East are creating a great deal of risk around any potential gold positions.
“Gold had a massive run,” he said. “I think a lot of the war was priced in, but I don't think the sell-down from $5,500 to $4,000 completely took all of the war out. It took some of the war concerns out, but not all of it. So it's already elevated, and there’s concern this is going to have to raise rates.”
“I consider the inflation data to have been lagging, and I think you could see, in another month or two, inflation start to turn back up again if oil continues to rise,” Cieszynski said. “So based on that, we have the possibility that the U.S. dollar could start to go up, and that puts a headwind in front of gold.”
“We're not at $3,000 anymore, we're not at $5,500 anymore,” he said. “We're somewhere settling in the middle. That's why I'm now neutral on gold for the time being. I don't know what it would take to get it going again, but I just feel like gold had such a huge run, and of course, it had a big pullback, and now it's got to sort itself out. And that could take three to six months.”
Looking ahead to Wednesday’s FOMC rate decision, Cieszynski said he expects a restrained Fed for the foreseeable future, as Warsh implied he doesn't want to make any major moves until his task forces have done their work.
“I think he's going to give everybody the summer,” he said. “Maybe you'll get a dissenter or two, probably not – I think that the Fed is going to try and stall through the summer, and then the September meeting will be more important. That's when they can start putting out their forecasts and other things.”
Cieszynski said the central bank also needs time to see whether June’s dip in inflation was a one-off or the start of a positive trend.
“In the winter, prices ran up, then prices came down, then prices went up… who knows what's going to happen between here and [the September meeting]?” he said. “I think they're going to stall for time and try and kick any cans down the road to September, and see where we're at after Labor Day.”
“Then, of course, you've got the midterm elections coming, so they obviously won't do anything at the October meeting,” he added. “That focuses everything on September. If anything is going to happen, or they're going to do anything, or they're forced to do anything, that's the one.”
Cieszynski said he doesn’t expect the gold market to move very far in either direction around Wednesday’s Fed rate decision.
“I just think it's the middle of summer and we've had quite a bit of volatility,” he said. “There's going to be a lot of earnings coming out. I don't think that the Fed wants to make waves. I don't think anybody wants to make waves in the middle of the summer this year. I think they're just trying to sort it all out.”
Cieszynski thinks gold prices will likely remain within their recent channel between $3,960 and $4,170 per ounce through this week, and he doubts this Fed meeting will provide the catalyst for a break in either direction.
“Unless the Fed surprises me, which I don't think they'll do.”
