Gold Rallies Above $4,100 as Weaker Dollar Draws Buyers Back
Author: Martin Lam
Gold prices surged above $4,100 an ounce during early Asian trading on Thursday, marking a significant rebound driven by a weaker US dollar, technical buying, and ongoing tensions in the Middle East. Spot gold (XAU/USD) was trading around $4,125 after a 1.7% increase on Wednesday, reaching a two-week high.
Market Snapshot
On Wednesday, spot gold peaked at $4,145.24 an ounce and hit a high of $4,165.87, the highest since July 7. US gold futures for August delivery closed 1.9% higher at $4,151.90. This recovery followed a volatile period where gold briefly dipped below $4,000 due to rising oil prices and US Treasury yields, which heightened expectations for sustained elevated interest rates. The early Thursday advance indicated that buyers viewed the $4,000 level as a crucial support point.
Other Precious Metals
Other precious metals also saw gains on Wednesday, with silver rising 2% to $59.98 an ounce, platinum increasing by 0.7% to $1,640.63, and palladium adding 1.4% to $1,299.47.
Dollar Weakness Supports Bullion
The US Dollar Index weakened after four consecutive days of gains, making dollar-denominated gold more affordable for buyers using other currencies. This dollar pullback, combined with short-covering and renewed purchases following gold's recent decline, provided fresh momentum for gold bulls. Lukman Otunuga, a senior research analyst at FXTM, noted that while a weaker dollar and dip-buying were encouraging, rising oil prices and tighter monetary conditions could still limit further gains.
Middle East Risks Sustain Demand
Safe-haven demand for gold remained strong amid escalating US-Iran tensions, with the conflict entering its 12th consecutive night of American strikes. US Secretary of State Marco Rubio indicated a willingness to negotiate, but accused Iran of not taking negotiations seriously. Risks to commercial shipping have also increased, with Yemen's Houthi movement claiming attacks on Saudi oil tankers in the Red Sea, prompting some tankers to alter their routes to avoid potential conflict.
Oil and Rates Limit Gains
Brent crude oil prices settled 3.3% higher near $94 a barrel on Wednesday, as concerns about disruptions in the Strait of Hormuz and the Red Sea grew. Higher energy prices could contribute to rising transport and consumer prices, complicating the Federal Reserve's inflation outlook. The US 10-year Treasury yield rose to approximately 4.66%, while the two-year yield reached a 17-month high, which typically diminishes gold's appeal since it does not yield interest.
Markets are currently pricing in a 76% probability of a Federal Reserve rate increase in September, with the next policy meeting scheduled for July 28-29, where the Fed's assessment of energy-driven inflation will be closely scrutinized.
Broader Market Impact
While geopolitical uncertainty supports gold prices, the ongoing conflict can also create conditions that weigh on the metal. Supply disruptions can enhance haven demand while simultaneously raising inflation expectations, Treasury yields, and the dollar. This dynamic has made gold increasingly sensitive to fluctuations in crude prices and interest-rate expectations. A sustained rise in oil prices towards $100 could reinforce expectations for tighter monetary policy, while a diplomatic resolution could alleviate both energy inflation and demand for defensive assets.
Outlook
Traders will be monitoring the dollar and US Treasury yields for indications that Wednesday's buying momentum can persist. Attention will also be directed towards the Federal Reserve's July meeting and any shifts in expectations regarding a September rate increase. Developments in the Strait of Hormuz and Bab el-Mandeb will remain critical; further tanker attacks or shipping diversions could bolster haven demand, while credible negotiations between the US and Iran could reduce gold's geopolitical risk premium.