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Gold is attempting to regain its balance near the $4,370 per ounce level during Wednesday’s trading, in an effort to end a three-session losing streak.
The yellow metal received some support from escalating geopolitical tensions in the Middle East, along with a weaker US dollar and a cautious mood prevailing in global markets. However, rising US Treasury yields and renewed expectations of a potential Federal Reserve interest rate hike continue to limit gold’s ability to achieve a strong recovery.
Gold is finding buyers… but cautiously.
Gold (XAU/USD) traded near $4,370 an ounce on Wednesday, as prices attempted to end the precious metal’s longest recent losing streak. Some support came from escalating geopolitical risks, a weaker dollar, and reduced investor risk appetite. However, the recovery remains limited, especially after the latest US jobs report showed significantly stronger-than-expected strength.
Gold came under strong pressure on Friday, with prices falling as much as 2.4% after a significant acceleration in US job growth. This data revived the prospect of a Federal Reserve interest rate hike, diminishing gold’s appeal compared to assets offering cyclical returns. This is the current paradox for the precious metal.
Investors want gold as a hedge against geopolitical risks, but at the same time, they are unwilling to push gold prices too high while government bonds offer rising returns. Therefore, the current movement appears more like calculated hedging than a widespread flight to safe havens.
Oil creates a complex equation for gold.
This equation becomes even more complex with rising oil prices. Brent crude approached $100 a barrel on Wednesday morning after renewed attacks targeting Saudi cities, Iranian tankers, and a US base in Jordan. On the one hand, this escalation is a support factor for gold. The greater the fears of a wider conflict, shipping disruptions, or damage to energy infrastructure in the Gulf region, the greater the demand from investors for assets considered safe havens.
But high oil prices have another side to gold.
Higher energy prices could keep inflation high for longer, which might prompt the Federal Reserve to raise interest rates or keep them at high levels for longer.
In this case, bond yields rise, increasing the opportunity cost of holding gold . Gold does not pay interest, while investors can earn returns from government bonds.
Thus, the same oil shock that drives investors to buy gold for fear of escalating geopolitical risks may also drive other investors to sell it because of its potential impact on monetary policy.
Bond yields are setting a ceiling on gold’s recovery.
The yield on 10-year US Treasury bonds recently reached about 4.81% , a level that makes the bond market a competitor that gold investors find difficult to ignore.
Gold typically becomes less attractive when real returns rise or interest rate expectations increase, because an investor can obtain income from yielding assets without having to take the risk of holding a metal that does not generate cash flows.
Therefore, gold’s ability to stabilize near $4,370 despite rising yields is a relatively positive sign for buyers. However, a stronger upward move would likely require one of two factors: a decline in US Treasury yields, or a sustained escalation of geopolitical tensions sufficient to increase demand for gold as a safe haven.
US inflation may determine the direction
Following strong jobs data, markets are now turning their attention to US inflation figures. Producer Price Index (PPI) data will be released on Thursday , followed by the Consumer Price Index (CPI) report on Friday , which is the more crucial report for interest rate expectations. Markets anticipate headline inflation to rise by approximately 0.4% month-on-month , while core inflation, excluding food and energy, is expected to increase by around 0.2% .
If the data comes in higher than expected, bets on a September rate hike could receive a boost. In that case, bond yields could rise and gold could come under further pressure, especially if the dollar recovers simultaneously. Conversely, if the inflation data is more moderate, expectations of a rate hike could recede, the dollar could weaken, and bond yields could fall, potentially giving gold a chance to reclaim the $4,400 level.
Gold levels under observation
From a technical perspective, the $4,400 per ounce level represents the first psychological test for gold should the recovery continue. If this level is breached, the area near $4,450 , which has recently seen futures trading, will be the next target for investors. On the downside, support appears near $4,350 , followed by the $4,300 level.
Therefore, gold’s movement in the coming days appears to be governed by a clear struggle between three factors: geopolitical risks, interest rates, and oil prices . The US inflation report on Friday will be the key factor that could help markets determine which of these forces will have the greatest impact. Gold is currently attempting to halt its three-session losing streak, benefiting from a weaker dollar and escalating geopolitical tensions. However, the road ahead is not easy.
The rise in oil prices to around $100 is increasing demand for gold as a safe haven, but it also threatens to keep inflation high, which could push the Federal Reserve toward a tighter monetary policy. Against this backdrop, US Treasury bonds are offering yields close to 4.81% , making the opportunity cost of holding gold relatively high. Therefore, the $4,400 level could be the first real test of buying strength. The biggest test will come on Friday with the release of US inflation data. Stronger-than-expected inflation could push gold back down to $4,350 and then $4,300, while a weaker reading could pave the way for the metal to recover to $4,400 and then $4,450. Currently, gold seems to have ample reasons to rise, but it also faces strong obstacles preventing it from taking off.
