Gold Rebounds, But the Fed's Shadow Remains a Threat
Gold prices rebounded on Thursday (July 9th) after three consecutive days of pressure. The slight weakening of the US dollar and falling US Treasury yields gave gold room to rebound.
XAU/USD traded around US$4,122 per troy ounce, up around 1.0% daily. However, this strengthening is not entirely secure as the market remains clouded by inflation risks and the direction of the Fed's interest rates.
Middle East tensions are back in the spotlight. The United States and Iran reportedly launched renewed attacks on Wednesday night, putting market participants back on alert.
US President Donald Trump called the latest attacks retaliation for the Iranian ship bombing. He also warned that the situation could worsen if further attacks occur.
Iran previously threatened to close the Strait of Hormuz if new attacks continued. This threat immediately sparked concerns about global oil supplies, given that the route is one of the world's most important energy routes.
The problem is, a surge in oil risk does not always automatically benefit gold. Rising energy prices could actually amplify inflationary pressures and open up room for the Fed to maintain, or even raise, interest rates.
The US dollar has also remained relatively resilient. The US Dollar Index is hovering around 100.97 after dropping to an intraday level of 100.79. This means that the pressure on gold from the greenback has not completely dissipated.
Hawkish expectations from the Fed also remain a major drag. According to the CME FedWatch Tool, the market estimates a 63% chance of a rate hike at the September meeting.
For gold, this scenario is quite severe. Higher interest rates make non-yielding assets like gold less attractive than bonds or other interest-bearing instruments.
OCBC Bank analysts believe that geopolitical tensions typically support gold. However, this time, the impact is stronger through oil, inflation, and interest rates.
Under these conditions, gold's rally remains vulnerable to stalling. As long as oil prices remain unstable and concerns about Fed policy remain unabated, gold's rally could struggle to sustain a solid continuation.
The minutes of the Fed's June 16-17 meeting also showed that central bank officials remain divided on the direction of interest rates. Some officials are still open to a potential increase if inflation remains high.
For the market, gold is currently at a crossroads. A weakening dollar and yields are providing short-term support, but the risk of energy inflation and the Fed's hawkish stance remain significant barriers to further rally.
Source: Newsmaker.id
