Escalating conflict between the US and Iran has driven a sharp decline in London spot precious metals overnight, with gold entering a correction phase as it faces dual pressure from hawkish monetary policy and rising inflation concerns.
Overseas monetary policy has turned increasingly hawkish, with expectations for a September rate hike gaining fresh momentum. The surge in crude oil prices has further fueled inflation worries, creating a challenging environment for the precious metal in the near term.
On the macroeconomic front, the US ISM manufacturing index for August fell to 54.6, slightly below the forecasted 55.2, though it remains the second-highest reading since 2022. The new orders sub-index retreated to 53.7, marking its weakest level since March, while factory employment posted its second consecutive monthly increase. The prices index held steady at 71.1. Meanwhile, US July JOLTS job openings came in at 7.27 million, marginally below the anticipated 7.31 million, but manufacturing job openings climbed to their highest level since December 2023, and July layoffs fell to their lowest since January this year.
On the geopolitical front, US forces have begun striking targets inside Iran, with President Trump warning of more severe retaliation should Tehran respond. Iran's key energy hub has come under attack, and the country has initiated counterstrikes in response. With the hawkish stance from Fed Governor Waller and the escalating US-Iran situation, oil prices have once again climbed to elevated levels, making the resumption of rate hikes an unavoidable topic for the Federal Reserve in September. Under these circumstances, gold is likely to continue exhibiting a cautious tone in its performance.
However, the contradiction between using rate hikes to curb inflation and the resulting upward pressure on long-term US Treasury yields remains difficult to resolve. As the ultimate credit hedge instrument, gold may once again gain favor with investors, though timing will be crucial. While gold's short-term volatility is expected to intensify and further corrections cannot be ruled out, its medium-term upward trajectory remains intact, with market participants closely monitoring the pace at which risk-off events are being priced in.
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