In the recent international market, the prices of crude oil and gold have experienced a synchronized decline, breaching critical psychological levels. However, on the 26th, following renewed military actions between the US and Iran, both gold and oil prices saw a rebound, making their future direction a key focus.
Mid-last week, the price of NYMEX WTI crude oil for August delivery briefly fell below the $70 per barrel mark. Similarly, ICE Brent crude for August delivery dropped to its lowest level since early March. Compared to the recent peak of $119.48, international oil prices have fallen by over 40%, with a monthly decline exceeding 20%. The risk premium associated with the Middle East geopolitical conflict has nearly evaporated, bringing prices back to pre-conflict levels.
International gold prices have also declined steadily. From early March to the present, the price has dropped by more than 25%.
The recent simultaneous decline in gold and oil is driven by both shared factors and their own distinct reasons.
Shared Market Drivers
Firstly, the common catalyst for this year's surge in gold and oil prices—heightened Middle East geopolitical tensions—has eased, leading to a sharp drop in market risk-aversion premiums.
Fears of a blockade in the Strait of Hormuz and a crude supply disruption previously drove oil prices sharply higher, with NYMEX WTI crude reaching a peak of $119.48 per barrel. Since June, as the US and Iran entered a second round of negotiations and full shipping traffic resumed through the Strait, the supply crisis dissipated, causing oil prices to relinquish all gains and fall back to the pre-conflict price range.
In the international gold market, although prices had already begun retreating during the Middle East conflict, they remained volatile due to safe-haven buying. As geopolitical risks subsided, safe-haven capital exited rapidly, and concentrated selling of safe-haven positions materialized. Last week, prices briefly closed below the $4,000 per ounce level.
Secondly, market expectations have shifted from anticipating Federal Reserve rate cuts to expecting hikes. This has led to a surge in real US Treasury yields and a rise in the US Dollar Index, collectively suppressing commodity prices.
During the Fed's June policy meeting, nearly half of the officials supported restarting rate hikes within the year, with the probability of a September hike rising to 70%. Market expectations for a Fed rate cut this year have completely vanished.
Although the easing of Middle East tensions reduced upward pressure on US Treasury yields, reinforced expectations of Fed rate hikes have supported yields at elevated levels. Last week, yields on 2-year, 3-year, 5-year, 10-year, and 30-year US Treasuries were reported at 4.148%, 4.147%, 4.176%, 4.394%, and 4.844%, respectively.
The US Dollar Index recently hit a 13-month high. Last week, it hovered around the 101.5 level, having risen more than 3% since early May. This strength has contributed to a broad decline in dollar-denominated commodities like gold and oil, with weakness seen across precious metals, energy, and base metals.
Commodity-Specific Headwinds
Naturally, each commodity also faces its own set of bearish factors.
For gold, the temporary easing of geopolitical tensions has led to a decline in inflation expectations, diminishing gold's value as an inflation hedge. Additionally, after more than two years of consecutive gains, substantial profit-taking by long positions at elevated levels has contributed to ongoing price adjustments.
For crude oil, on the supply side, Gulf countries are gradually unwinding voluntary production cuts, leading to expectations of a more relaxed global supply. Furthermore, the Middle East conflict has spurred continued high output from US shale oil, collectively ensuring supply. On the demand side, the earlier conflict negatively impacted consumption, while persistently high interest rates are constraining economic growth, limiting the strength of any demand recovery. This weakening of fundamental supply-demand dynamics has led to sharp price swings in oil.
Short-Term Outlook and Key Catalysts
In the short term, market observers believe the renewed US-Iran military actions introduce significant uncertainty into the trajectories of international gold and oil markets, potentially leading to sharp two-way volatility. If the situation persists, potentially rendering any US-Iran agreement meaningless, gold and oil markets could undergo a repricing. The global economy would also lose a hard-won opportunity for recovery, with substantial negative impacts likely unavoidable.
If, however, the US and Iran reach an agreement swiftly, currency exchange rates and interest rate expectations in major economies will become the dominant factors for gold and oil. Prices may continue weak, range-bound trading. The sole catalyst for an oil price rebound would be a renewed deterioration in the Middle East situation, leading to another disruption in Strait shipping.
Longer-Term Perspectives
From a longer-term perspective, gold still enjoys support from ongoing central bank purchases, suggesting limited downside potential. For crude oil, future trends will depend on policy changes from "OPEC+" and the actual demand generated by global economic recovery. The pace of global demand recovery will be a key variable influencing the next phase of market movements.
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