Introduction to Gold Investment
The U.S. labor market has been experiencing a lot of ups and downs in the second quarter of 2025. This uncertainty has created a good opportunity for investors who like to go against the crowd. With the Federal Reserve’s upcoming meeting in July, where they will decide whether to keep interest rates the same or lower them, gold prices are expected to be volatile. This volatility presents a compelling opportunity to buy GLD, the main gold ETF.
Nonfarm Payroll (NFP) Volatility: A Gold Catalyst
Recent NFP reports have been anything but stable. The numbers have been revised down several times, showing a slowdown in job growth. This volatility is not just random noise; it reflects the uncertainty around trade policies, government workforce cuts, and uneven growth in different sectors. When NFP data is weaker than expected, gold prices typically go up, especially in the first 15 minutes after the report is released. For example, during the second quarter of 2025, gold prices surged an average of $7.20 in the 15 minutes following weak NFP reports, while strong reports led to declines of $5.20.
The Federal Reserve’s Crossroads: Pause or Cut?
The Federal Reserve’s June statement reaffirmed its "wait-and-see" stance, but the July meeting could change the narrative. With inflation cooling down to 4.2% and GDP growth projected at just 1.6% for 2025, the case for a rate cut is getting stronger. Historically, gold has performed well during periods when the Fed is easing monetary policy. In the three months following the last two rate cuts (2020 and 2022), GLD rose by 14% and 9%, respectively.
Why Buy GLD Now?
There are several reasons why now is a good time to buy GLD:
- Technical Setup: GLD is trading near $3,300, which is a 20% discount to its 2020 peak. A breakout above $3,400 would signal a return to its 2024 uptrend.
- Fed-Driven Volatility: The uncertainty around the July meeting means that gold prices will likely be volatile. Traders can use options to profit from this volatility.
- CFTC Overcrowding: Extreme long positioning in gold futures often precedes reversals. However, this time, central banks are still net buyers of gold, which should limit the downside.
Risk Management: Navigating the Fed’s Uncertainty
To manage risk, investors can follow these strategies:
- Entry Point: Buy GLD at $3,300, with a stop-loss below $3,200.
- Target: Aim for $3,450 by mid-July, with upside to $3,600 if the Fed signals a cut.
- Alternative Play: Use inverse ETFs to hedge against Fed hawkishness, but prioritize long exposure given the Fed’s easing bias.
Conclusion
The Federal Reserve’s July decision is crucial for gold’s next move. While markets are pricing in a pause, the data supports a rate cut. For contrarian investors, this is a rare opportunity to buy GLD at a discount, leveraging both the inverse NFP-gold relationship and the Fed’s eventual pivot. Whether the Fed pauses or cuts rates, the contrarian who acts now stands to profit.
