Last week, the global gold market experienced a dramatic tug-of-war between bulls and bears. Spot gold opened at $4,346 per ounce on Monday, August 11, and surged to a two-month high near $4,450 during the week, only to plunge 1.3% on Thursday due to profit-taking. On Friday, it dipped to a weekly low around $4,310 before staging a textbook V-shaped recovery after an unexpected slump in U.S. retail sales data. Gold closed at $4,375.80 per ounce, posting a weekly gain of approximately 0.8%. With a weekly range of about 140 points, gold formed a bullish weekly candlestick with a long lower shadow, underscoring the resilience of the bulls.
This rally was driven by cooling U.S. economic data, expectations of a Federal Reserve rate cut, and escalating geopolitical tensions in the Middle East. Market sentiment is now clearly bullish, though the outlook heavily depends on changes in Fed rate hike expectations. This week, the focus will be on the Federal Reserve’s meeting minutes. On Monday, August 17, spot gold traded narrowly around $4,375 per ounce during early Asian hours.
The Dollar's Decline: From "Rate Hike Premium" to "Data Collapse"
The dollar, a key anchor for gold pricing, faced a systemic blow last week. The U.S. dollar index closed at 99.64 on Friday, hitting a three-month low during the session. Opening at 99.58 and closing at 99.63, the index gained only 5 points for the week, reflecting a complete repricing of the Fed's policy path. The unexpected decline in July non-farm payrolls served as an initial warning. Subsequently, the July CPI edged up only 0.1% month-on-month, with the annual rate slowing from 3.5% in June to 3.4%, meeting expectations. The PPI was flat month-on-month, with the annual rate plummeting from 5.5% in June to 4.7%. This sustained cooling of inflation prompted the market to quickly reduce rate hike bets. The CME FedWatch Tool shows that the probability of a September rate hike has plunged from 55% a week ago to about 33%, meaning the market now sees a 67.5% chance of rates remaining unchanged.
The decisive blow to dollar bulls came from the "terrifying data" released on Friday. U.S. retail sales fell 0.6% month-on-month in July, marking the first decline in nine months and the largest drop in 14 months, against economists' expectations of a slight 0.1% increase. Juan Perez, trading director at Monex USA, stated, "We are clearly seeing signs of weak consumption, clear evidence that the U.S. economy is slowing." The dollar index fell 0.3%, directly providing external support for dollar-denominated gold. Jim Wyckoff, an analyst at American Gold Exchange, noted, "The weaker dollar index provided favorable external market support for gold prices on Friday." Commerzbank asserted in a report, "Given that we expect the Fed not to raise rates, gold prices have further room to rise."
The Reversal of Rate Hike Expectations: From "75% Probability" to "33% Probability"
If the dollar's weakness was the "fuel" for gold's rise, the collapse of rate hike expectations was the "fuse" that ignited it. Just a month ago, the market priced a 75% chance of a September rate hike. In a few weeks, that probability has plummeted from 75% in late July to about 33%, a true "rout of the rate hike trade." The unexpected decline in non-farm payrolls, the consecutive cooling of CPI and PPI, and the surprising drop in retail sales have completely dismantled expectations of a Fed rate hike, erasing all the "hawkish" premium accumulated since Kevin Warsh took over as Fed chair. At the July FOMC meeting, the Fed held rates steady for the fifth consecutive time, maintaining the federal funds rate target range at 3.50% to 3.75%, but three officials dissented in favor of a 25-basis-point rate hike. This 9-3 split vote highlights a more intense internal division than the surface suggests. This week, the market's focus will shift to the minutes of the July FOMC monetary policy meeting, released on Wednesday. Investors will scrutinize for any clues about future policy direction, especially given the three dissenters, making these minutes more significant than usual. If the minutes reveal more officials are hesitant about rate hikes, gold could gain further upward momentum.
Geopolitical Tensions: Oil Price Surge Revives Rate Hike Concerns
The raging conflict in the Strait of Hormuz is not simply a safe-haven boon for gold. As tensions escalated between Iran and the U.S. this week—with two UAE vessels attacked, Iran vowing to permanently expel U.S. forces from the Persian Gulf, and the U.S. threatening an indefinite blockade—international oil prices surged. Brent crude closed at $88.52 per barrel on Friday, up 6% for the week, while U.S. crude rose to $82.40. While the volatile situation should theoretically trigger safe-haven buying of gold, financial markets are following a different logic: the oil price surge is fueling fears of a resurgence in inflation, which in turn revives expectations of a Fed rate hike, acting as a sharp sword hanging over gold prices. The core market contradiction has shifted. As oil prices surged over 5% in a week, nearing the $90 mark, investors quickly shifted focus from the geopolitical conflict itself to its macroeconomic consequences. Crude oil, as the lifeblood of industry, directly raises transportation costs and raw material prices, eventually feeding into consumer goods and reversing the nascent trend of cooling inflation. After the U.S. July CPI slowed to 3.4% and PPI plunged to 4.7%, the market briefly believed inflation was under control. However, the risk of a strait closure threatens this optimistic outlook. This concern quickly reflected in rate pricing. Although the unexpected drop in U.S. retail sales briefly pushed the probability of a September rate hike down to 31%, the oil price surge kept the probability of a December rate hike around 67%. More critically, sustained high oil prices will erode consumer purchasing power, further dampening consumption, while also boosting headline inflation, putting the Fed in a "stagflation" dilemma. In such an environment, the Fed typically prioritizes fighting inflation over supporting growth, meaning rate hike expectations could resurface due to rising oil prices. As a non-yielding asset, gold is highly sensitive to changes in real interest rates (nominal rates minus inflation expectations). While rising oil prices might temporarily lower real rates by boosting inflation expectations, the market quickly anticipates a more aggressive Fed response, pushing up nominal rates and causing real rates to rise instead. This explains why gold surged to $4,450 on Thursday, then plunged 1.3%, and dipped to $4,310 on Friday: profit-taking was not just a simple exit, but smart money preemptively trading on the "oil-inflation-rate hike" bearish chain. More worryingly, the safe-haven demand from geopolitical risks is inherently time-sensitive and fragile. If there are any signs of de-escalation—such as renewed U.S.-Iran talks or a temporary ceasefire—oil prices will quickly shed their risk premium, and gold's safe-haven buying will also retreat, leading to a "double whammy" decline for gold. Historically, during the 1973 oil crisis and the 1990 Gulf War, gold initially rose on safe-haven demand, but as oil prices surged and triggered aggressive central bank rate hikes, gold prices typically came under pressure in the medium term. The current crisis in the Strait of Hormuz is replaying this classic script. In fact, U.S. Defense Secretary Pete Hegseth has stated that the U.S. military can maintain the blockade indefinitely, Treasury Secretary Steven Mnuchin has warned of more measures to economically isolate Iran, and former President Donald Trump has called on Americans to accept slightly higher gasoline prices. These statements suggest that oil prices are unlikely to fall in the short term, and inflationary pressures will persist. In this context, gold's safe-haven appeal is being gradually overshadowed by the specter of rate hikes. This bearish feedback loop—where geopolitical risks boost oil prices, oil prices strengthen rate hike expectations, and rate hikes suppress gold prices—is currently driving the real direction of the gold market.
Central Bank Gold Purchases and Market Sentiment: What Supports the Bulls?
Beyond macroeconomic and geopolitical narratives, a structural force cannot be ignored: continued gold purchases by global central banks. Data updated by the People's Bank of China on August 7 shows that as of the end of July 2026, China's gold reserves stood at 76.08 million ounces (approximately 2,366.35 tonnes), an increase of 640,000 ounces from the end of June. This marks the 21st consecutive month of gold purchases by the People's Bank of China, with the pace of accumulation accelerating from the previous month's 480,000 ounces. Amid rising global uncertainty, official sectors are still actively allocating gold as a strategic reserve. In terms of market sentiment, the latest weekly gold survey from Kitco News shows that Wall Street professionals are overwhelmingly bullish on gold's outlook. Nine out of ten analysts surveyed, or 90%, expect gold prices to rise further this week, with only one bearish and none neutral. Meanwhile, among 222 retail voters, 150 (68%) are bullish on gold. This rare alignment of bullish sentiment between Wall Street and retail investors provides strong psychological support for the market. However, not everyone is blindly optimistic. Darin Newsom, senior market analyst at Barchart, pointed out that technically, the daily close chart for December gold futures may be entering a short-term downtrend, with a risk of a pullback this week. Adrian Day, president of Adrian Day Asset Management, also noted that gold is "modestly higher" in the short term but remains range-bound, lacking the momentum to push prices significantly higher.
Outlook: Three Key Uncertainties Determine Gold's Direction
Looking ahead to this week, three key uncertainties will determine whether gold can break through the $4,450 resistance and target the $4,500 level. The first uncertainty centers on the Federal Reserve. The minutes of the July FOMC meeting, released on Wednesday, are the most important event of the week. The market will closely scrutinize the stance distribution behind phrases like "a few members," "several members," and "most members." If the minutes show more officials favoring keeping rates unchanged, a further decline in rate hike expectations could open upward space for gold. The second uncertainty revolves around the Strait of Hormuz. The U.S.-Iran standoff continues, with Iran stating it will not reopen the strait until its conditions are met. Any new military conflict or shipping incident could support oil prices and Fed rate hike expectations, limiting gold's gains. The third uncertainty comes from U.S. economic data. This week will see the release of the New York Fed Empire State manufacturing index, housing starts and building permits, pending home sales, initial jobless claims, and the S&P Global U.S. composite PMI preliminary reading. If these data continue to point to an economic slowdown, they will further reinforce expectations of the Fed holding steady, which is positive for gold. Conversely, if data surprisingly strengthens, it could reignite rate hike concerns and pressure gold prices. UBS previously forecast that gold prices could rise to $5,000 per ounce by the first half of 2027. In the short term, gold is likely to remain in a tug-of-war between forces: the support of weak consumer data and a dovish Fed lean on one side, and the pressure of energy inflation and tightening policy expectations on the other. If gold breaks through the two-month high at $4,450, it will face dual resistance at the 200-day moving average and the $4,500 mark. Further strong resistance lies near the April 17 high of $4,889. However, if oil prices remain high, gold faces downside risk, potentially falling back below $4,300. Investors should closely monitor the wording on inflation risks in this week's FOMC minutes and any diplomatic signals that could ease tensions in the Strait.
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