International gold prices have staged a powerful rally, breaking through the $4,100, $4,200, and $4,300 thresholds in just two days, reaching a high of $4,362 per ounce. As of August 6, COMEX gold futures were trading at $4,325.9 per ounce, maintaining a high volatile range. Many investors are surprised by the sharp moves, which have exceeded market expectations.
The recent surge in gold prices is driven by easing Middle East tensions, which have lowered oil and gas prices and reduced expectations for significant Federal Reserve rate hikes later this year. Additionally, the global tech stock correction in July has spurred buying interest in gold as a reallocation asset, according to Xu Yaxin, a researcher at the Beijing Gold and Silver Economic Development Research Center.
Weakening Dollar Supports Gold Valuation
The rally is tied to positive signals from US-Iran talks. Reports indicate that the US, Iran, and Oman are close to a temporary agreement to reopen the Strait of Hormuz. US President Donald Trump has publicly stated the negotiations are "going very well" and that the strait will "soon" reopen. The proposed 60-day transitional arrangement, to be jointly executed by Oman and Iran, includes clearing mines from the central channel within 30 days.
"The easing of Middle East tensions and the sharp decline in international oil prices have directly weakened market expectations of inflation rebound, with the risk premium from geopolitical conflicts quickly dissipating, thus reducing the valuation pressure on precious metals," said Yuan Zheng, an analyst at Galaxy Futures. "Meanwhile, the US ADP private sector employment report for July showed only 44,000 new jobs added, well below the market expectation of 70,000, marking the smallest increase since January. This clear signal of a cooling labor market has further reduced market expectations of a Fed rate hike in September. The marginal softening of the Fed's policy stance has opened up space for valuation recovery in precious metals."
Yuan added that yen intervention operations have led to a decline in the US dollar index. Japan's use of the FIMA tool (a repurchase facility established by the Fed in 2020 for foreign and international monetary authorities) to obtain dollar funds has expanded dollar liquidity, which is bullish for gold. This process is expected to continue under long-term exchange rate pressure.
"The direct driver of the recent weakening of the US dollar index is the coordinated intervention by US Treasury Secretary Bessent with Japan to stabilize the yen exchange rate. The US action is not purely to help its ally but to prevent a massive sell-off of trillions in US Treasuries by Japan, which would raise US financing costs. By selling euros and buying yen, the US stabilizes the currency market, avoids a concentrated sell-off of US bonds, eases upward pressure on US bond yields, and diminishes the momentum of the dollar bull. This allows non-yielding assets like gold to recover their valuation," said Xu Yaxin.
Notably, Fed Chairman John Walsh has significantly reduced his public commentary, cutting back on forward guidance and simplifying policy statements since taking office. He has offered vague and evasive answers during press conferences, focusing on reducing the central bank's influence on financial markets. His approach emphasizes reducing policy commitments, increasing data dependence, and placing price stability back at the core of policy. Meanwhile, other Fed officials have been unusually vocal, with hawkish views dominating.
Regarding this, Xu Yaxin noted that statements from FOMC members like Kashkari, Logan, and Cook show that internal hawkish sentiment has not faded. The July FOMC meeting saw three dissenting votes against a rate hike, and CME Fed funds futures show a nearly 57% probability of a 25-basis-point rate hike in September. The expectation of a rate hike in the second half of the year still exists, but the market is currently positioning for a transitory moderation in inflation, temporarily suppressing US bond yields and providing a short-term window for higher gold prices.
Geopolitical Situation as Key Variable
Some analysts believe the rally is linked to capital flowing back into the precious metals market, with foreign gold ETFs seeing clear inflows. Yuan Zheng provided direct evidence from the SPDR Gold Trust, the world's largest gold ETF. As of August 5, its holdings rose to 1,014.157 tons, an increase of 4.85 tons from the previous trading day. "On August 4, there was also an increase of 3.43 tons. Over a longer period, since the July 17 low of 999.02 tons, SPDR Gold ETF holdings have increased by about 15.12 tons, a gain of 1.51%. Total foreign gold ETF holdings have also recovered from the July 17 low of 2,993.711 tons to 3,010.509 tons, reversing the previous trend of continuous capital outflows and signaling that foreign institutions are reallocating to gold assets," Yuan said.
Xu Yaxin added, "From a capital flow perspective, the global precious metals market is seeing a clear return. The SPDR Gold ETF has ended its continuous reduction and has been increasing holdings for several consecutive days. Institutions and hedge funds are increasing their long positions in gold, driven by geopolitical uncertainty and dollar credit weakness, pushing capital from equities and dollar assets into precious metals as a safe haven."
Compared to overseas markets, Xu Yaxin noted that the domestic market is also seeing incremental capital. The main contract of Shanghai gold futures has seen a continuous increase in open interest, with significant long-side increases. Mainstream gold ETFs, such as those from Huaan and Guotai, have seen net inflows for over ten consecutive days, accumulating nearly 90 billion yuan in that period. Both retail and institutional investors are positioning, creating a two-way support for domestic and international markets.
However, Yuan Zheng cautioned that the short-term market's main focus is on Friday's nonfarm payrolls data and the actual reading of next week's CPI. The US ADP employment report for July showed only 44,000 jobs added, well below expectations, which has already pushed the market's probability of a Fed rate hike in September from nearly 70% early this week to around 54%. But ADP and nonfarm payrolls are not always consistent. If the nonfarm data is surprisingly strong, rate hike expectations could rebound quickly, triggering profit-taking in gold. Conversely, if the data continues to weaken, it will further open the door for valuation recovery.
On inflation, the June CPI fell to 3.5% year-on-year. If the July data continues to decline, it will strengthen expectations of a Fed policy change. But if core inflation bounces back, hawkish voices will regain the upper hand.
Yuan Zheng also noted that geopolitics represent the biggest source of uncertainty. "The positive signals from the US-Iran Strait of Hormuz temporary agreement talks have led to a sharp drop in oil prices and a swift dissipation of the risk premium, which is the direct catalyst for this round of precious metals rally. But this 'pause' is far from ending the conflict. Iran has denied direct talks with the US, and the US has threatened a 'forceful strike' if the strait is not reopened. Red Sea risks also remain," Yuan said.
Therefore, Yuan believes geopolitical tensions could still recur. The bullish signals have been partially priced in, while bearish risks are not yet cleared. London gold's momentum has weakened after rising to around $4,300 per ounce. While the oil price correction has temporarily suppressed inflation expectations, any unexpected escalation in geopolitics could quickly reverse oil prices and risk sentiment, creating new upward momentum for gold.
Has Gold Bottomed?
As gold prices continue to rise, the factors influencing them have drawn attention. Xu Yaxin listed several key factors: first, US inflation data such as CPI and PCE, and labor market data like nonfarm payrolls, will directly determine the Fed's future rate path; second, the sustainability of US-Japan exchange rate intervention and US bond volatility; third, the progress of US-Iran talks on the Strait of Hormuz, as geopolitical conflicts can alternately drive safe-haven demand and rate hike expectations; and finally, continued central bank gold purchases, gold and silver ETF flows, and the long-term trend of the US dollar index.
From a technical perspective, Xu Yaxin noted that gold has gone through a complete five-wave decline from its January high of $5,600 per ounce to its June-July low of $3,950 per ounce. The past month's consolidation at the daily level was confirming the support of a potential double bottom. Gold has now broken through the neckline at $4,200 per ounce, with a theoretical target of $4,450–$4,500 per ounce.
Yuan Zheng added that while gold has stabilized above $4,300 per ounce, it still needs more confirmation signals. The short-term outlook is highly dependent on the resonance of three key events: nonfarm payrolls, CPI, and the pace of the US-Iran agreement. On the capital flow side, significant net inflows into domestic gold ETFs and continued central bank buying provide a floor for prices. However, the probability of a Fed rate hike remains above 50%, and the internal hawkish divergence within the Fed is clear. ETF flows also have potential risks of outflows, so the bearish factors cannot be ignored.
In the short term, Yuan suggested trading should closely follow data and events, leaning bullish but being cautious about chasing highs, and being wary of profit-taking risks. In the medium term, the bottom around $4,000 per ounce has been repeatedly tested. If macroeconomic data and geopolitical conditions align, gold still has the potential for a phased rally. But before that, a solid break above the $4,300 level requires more fundamental confirmation.
Compared to gold, Yuan Zheng said the fundamentals for silver are currently less optimistic, with the main drag coming from much weaker-than-expected demand from the photovoltaic (PV) sector. The Silver Institute predicts that as the PV industry continues to advance the "silver reduction, copper substitution" technology roadmap, global silver demand from PV will decline by about 19% by 2026. This will drag overall industrial manufacturing demand down by 2% to around 650 million ounces, a four-year low. In reality, the reduction in domestic PV installed capacity this year has been even weaker than previously weak expectations.
From a capital flow perspective, silver ETFs have not yet formed a sustained net inflow trend. The world's largest silver ETF, iShares Silver Trust, saw a one-time increase of 89.97 tons on August 1, but then decreased by 6.41 tons on August 4, and holdings remained unchanged on August 5. This contrasts sharply with the clear inflow trend of gold ETFs (SPDR), which have been increasing holdings by about 15 tons since mid-July. This confirms that capital flows are currently concentrated in gold, with silver rising more as a follower.
Therefore, Yuan Zheng believes silver's pace is likely to lag behind gold. Only after macroeconomic data (such as nonfarm payrolls and CPI) further confirms the Fed's policy turning point and market risk appetite fully recovers, will capital likely spill over from gold to silver. At that point, the start of net ETF inflows will become an important signal for positioning long. Current ADP data has set a weak tone, but Friday's nonfarm payrolls still carry uncertainty. The timing for a right-side entry in silver will need to wait for clearer signals from capital flows.
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