On Monday, July 13th, during the early European session, spot gold extended its decline for a second consecutive trading day. The metal is currently trading around $4,070 per ounce, down approximately 1.2% on the day. Concurrently, Brent crude oil has risen to $77.5 per barrel, while the US Dollar Index hovers near 100.90. The re-emergence of transit risks in the Strait of Hormuz has re-entered the calculus for energy, inflation, and the interest rate curve. The fact that gold has not benefited from escalating conflict indicates that the dominant pricing variable has shifted from simple safe-haven demand to real interest rates and liquidity constraints.
Why Gold Falls During Conflict Escalation
Safe-haven demand is not a sufficient condition for gold to rise. If a shock primarily depresses growth and prices, funds typically flow into gold. However, if a shock first elevates crude oil, transportation, and insurance costs, the market will raise its expectations for inflation and policy interest rates. Gold does not yield interest. When nominal yields rise, expectations for rate cuts recede, and the US dollar strengthens, the opportunity cost of holding gold increases concurrently.
The simultaneous occurrence of an energy shock, rising yields, and a strong US dollar is sufficient to temporarily outweigh safe-haven buying. The deeper logic is that supply-side inflation first elevates the path for real interest rates. Gold's monetary attributes may only regain dominance when markets begin to doubt monetary policy's ability to contain inflation, or when growth losses significantly exceed the impact of price shocks.
The Federal Reserve's Reaction Function Becomes the Pricing Core
The Federal Reserve's June meeting maintained the target range for the federal funds rate at 3.50% to 3.75%. The meeting minutes indicated that inflation risks continue to be skewed to the upside, while downside risks to employment have moderated somewhat. A few policymakers saw a case for raising rates but still supported holding steady at that meeting. The minutes also showed the April overall Personal Consumption Expenditures (PCE) price index at 3.8% year-on-year, with the core measure at 3.3%. Staff estimates put the May overall figure at 4.1% and the core measure at 3.4%.
Interest rate futures currently price in approximately a 71% probability of a Fed rate hike in September, up from about 63% the previous week. This implies that gold is facing not just the prospect of high rates for longer, but also the repricing of the tail risk of renewed policy tightening. If subsequent consumer price, producer price, and retail data continue to reflect cost pass-through, short-term rates may be more sensitive than long-term rates. This repricing of the yield curve will directly impact the cost of holding gold.
Technical Structure Remains a Weak Recovery
The daily chart shows the Bollinger Band middle line at $4,145.11 per ounce, the upper band at $4,343.54, and the lower band at $3,946.68. The current price remains below the middle line. The previous low of $3,943.65 nearly coincides with the lower band. The rebound high of $4,202.09 failed to reverse the declining middle line, while the earlier high of $4,382.04 constitutes a higher-level resistance zone.
The MACD shows a DIFF of -65.87 and a DEA of -82.88, with the histogram turning positive to +34.02. This indicates a contraction in downward momentum, but with both lines still below the zero axis, the nature is closer to an oversold recovery rather than a trend reversal. The $4,140 to $4,202 zone reflects near-term supply pressure, while the $3,943 to $4,000 zone is a key equilibrium band for the current volatility structure. The Bollinger Bands overall remain tilted downward, meaning that even if a rapid rebound occurs, the market would need the middle line to flatten accompanied by converging volatility to confirm a shift from unilateral deleveraging to stable consolidation.
Contracting Positions Reveal Deleveraging is Not Over
As of July 7th, speculative net long positions in gold fell to 114,854 contracts, a decrease of 1,964 contracts from the previous week. More notably, long positions increased by 1,320 contracts to 134,791, while short positions increased by 3,283 contracts to 19,937. This indicates that the decline in net longs is not merely due to withdrawal, but rather that the growth of new hedging and directional short positions is outpacing long additions.
Since the onset of US-Iran tensions in late February, the cumulative pullback in the gold price has exceeded 20%, and it has breached the $4,000 per ounce level for the first time since November 2025. Profit-taking after a three-year rally, margin constraints following increased volatility, and thinner summer liquidity have collectively amplified price elasticity. Future pricing will need to observe whether crude oil can sustain high levels, if short-term yields continue to rise, and whether inflation data validates the pass-through of energy costs to core prices. If the positioning structure continues to show short positions growing faster than long positions, any safe-haven bounce is likely to first encounter inventory and hedging-related selling pressure rather than immediately forming a sustained trend.
Comments