Gold’s recent market moves have been anything but smooth, which somewhat supports a “Madonna-style” expectation-management strategy by the Federal Reserve. Gold is one of the assets most sensitive to real interest rates, and this was demonstrated vividly when Volcker took over the Fed. His swift assumption of office quickly ignited the market’s pricing of further rate hikes; the surge in expectations for real yields directly put strong downward pressure on gold prices, which also led to a sharp drop in gold.

The “Madonna interest rate theory” refers to the idea that in macro games, markets always price in what decision-makers are expected to do in advance, rather than reacting to already-realized facts. The origin is Madonn a nearly running straight ahead with the ball in a World Cup match, while an England defender proactively stepped aside the defensive lane because he predicted a change in direction. The current macro environment has a certain similarity to the Bank of England’s 2014 actions: the central bank repeatedly manufactures expectations for rate hikes through forward guidance, yet keeps delaying execution, causing market signals to become extremely fragmented.
Looking back at the Fed’s situation right now, the motivation for such expectation management is also clear. Objectively, is there a need for rate hikes? There is. Geopolitics has continued to push up crude oil prices, and the transmission pressure from oil prices to inflation is objectively present; moreover, after refineries were bombed, capacity restoration takes time. But politically, would Trump allow rate hikes? Almost impossible—his bottom line has always been a strong preference for low interest rates.
Therefore, the “Madonna strategy” is a way to break the deadlock: suppress commodities and rising inflation via rate-hike expectations, but in actual execution it may ultimately compromise under political pressure and hold rates steady. As long as, through repeated probing and signal releases, the market is allowed to digest the impact of an inflation rebound in advance, then regardless of whether rate hikes truly happen, the marginal damage to the trading backdrop will be significantly weakened. The rate decision at the end of the month will reveal the outcome.