↑ Fed Expect. rises → Gold falls ↓Source: US Treasury (2Y yield) minus Fed Funds Rate — FRED·Daily · ~1 day lag
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What is the Fed Expect.?
This is the interest rate on a 2-year US government loan, minus today's Fed interest rate. Gold pays no interest, so the more attractive bonds look, the less attractive gold looks by comparison.
The difference from Real Yield 10Y: that one tells you the cost of holding gold right now. This one tells you what the market expects that cost to be over the next 2 years — it's a preview, not a snapshot. If investors think the Fed will cut rates soon, this number goes negative before the actual rate cut happens.
How does it affect gold?
↓ Rule: When Fed Expect. rises → gold tends to fall
When this number is positive, the market doesn't expect the Fed to cut rates soon — bonds keep paying well into the future, so gold (which pays nothing) stays less attractive. Bad for gold.
When this number is negative, the market expects cuts ahead — future bond returns are expected to shrink, making gold relatively more attractive. Good for gold.