Following a period of deep correction lasting several months, gold is now at a critical juncture where technical and fundamental factors converge.
Since late February this year, the price of gold has fallen by approximately 22%, yet it has recently shown strong gains despite facing a triple headwind of a strengthening US dollar, rising bond yields, and elevated oil prices.
Spot gold broke through the $4,100 per ounce mark during Asian trading hours on Wednesday, reaching an intraday high of $4,141.
However, recent research reports from both HSBC and JPMorgan point to the same conclusion: this rally appears more like a technical recovery from an oversold condition rather than a trend reversal, with upside potential remaining limited.
According to an analysis by HSBC's Chief Precious Metals Analyst James Steel in a July 21st report, the premium on the Shanghai Gold Exchange has risen to $6-$8 per ounce, indicating a recovery in domestic physical demand. A large, concentrated buy order may have been the direct catalyst for this price surge. Concurrently, US private sector employment data (ADP) has declined for the fourth consecutive week to a net increase of 165,000 jobs, but the impact of this weak signal on gold prices is similarly difficult to quantify.
The bank also believes that market expectations for monetary policy tightening have been largely priced in, which could allow gold prices to continue a gradual ascent. However, geopolitical risks—particularly escalating tensions in the Middle East and further rises in oil prices—remain the most significant threat.
JPMorgan's technical strategist Jason Hunter provided a more cautious interpretation from a chart perspective. He noted that gold is currently seeking support around $4,074, which represents the 38.2% Fibonacci retracement level from August 2022. The emergence of momentum divergence buy signals suggests the market may enter a more prolonged period of consolidation. However, the medium-term bearish bias for gold remains unchanged until the cluster of trendline resistance between $4,197 and $4,264 is decisively broken.
The Unusual Rally Amid a Triple Headwind
The reason this gold rally has captured market attention is the extremely unfavorable macroeconomic backdrop in which it occurred. A strengthening US dollar index, rising US Treasury yields, and persistently high oil prices—these three factors have historically been core variables that suppress gold. Yet, the gold price has managed to rise against the trend while all three are exerting pressure simultaneously.
HSBC's James Steel interprets this phenomenon as a signal of potential underlying strength. He wrote in the report that after a prolonged period of sideways consolidation around $4,000, investors may have judged the timing ripe for an upward breakout. This rise might not be a mere technical rebound; the market may have already largely digested expectations for monetary policy tightening, while other risk factors are providing support for gold prices.
However, James Steel also emphasized that this does not mean the path upward is clear. He believes that if geopolitical tensions escalate further, causing a significant spike in oil prices that drives the US dollar and yields higher in tandem, gold prices would face downward pressure. This is currently the primary downside risk.
The situation in the Middle East is the most significant variable affecting gold's direction at present, but its impact is not unidirectional.
The HSBC report notes that conflict in the Middle East continues to escalate. The International Energy Agency (IEA) has also warned that "there is no room for complacency on oil security," pointing out that an escalation in hostilities could further reduce global oil inventories.
The bank believes that for gold, geopolitical tensions typically have a safe-haven boosting effect, but the current situation is more complex. If oil transport through the Strait of Hormuz is disrupted, a sharp surge in oil prices would push inflation expectations higher, potentially forcing the Federal Reserve to maintain a restrictive policy stance for longer. This could lead to simultaneous strength in the US dollar and yields, which might ultimately put downward pressure on gold. HSBC views this transmission chain as the most significant tail risk currently facing gold prices.
It is worth noting that the Federal Reserve is currently in its "blackout" period, leaving the market without fresh guidance from the monetary policy front. This, to some extent, increases the uncertainty surrounding gold's price movements.
Technical Perspective: Medium-Term Bearish Bias Intact
JPMorgan's technical analysis provides a more cautious framework for interpreting this rally.
Jason Hunter noted in the report that spot gold is currently seeking support around $4,074 (the 38.2% Fibonacci retracement from August 2022) and $3,886 (the October 2025 low). The recent clustering of momentum divergence buy signals suggests the possibility of further market consolidation, but this does not constitute a sufficient condition for a trend reversal.
He listed three structural factors constraining gold's upside:
First, the charts lack a medium-term accumulation pattern. Second, the US Dollar Index is trading above its annual range breakout level, presenting a technically bullish formation. Third, the 2-year US Treasury yield has broken above the support of a multi-quarter range, placing it in a bearish position for gold.
Against this backdrop, JPMorgan believes the medium-term bearish bias for gold remains valid until the cluster of trendline resistance between $4,197 and $4,264 is broken. Medium-term resistance is located near $4,500. If gold prices resume a downward acceleration, support levels below are seen at $3,605 (the 50% retracement from August 2022) and the $3,400-$3,500 range, which was the breakout area in Q4 2025.
Limited Upside, But Constrained Downside Risks
Synthesizing the views from HSBC and JPMorgan, the current gold price is in a delicate balance—possessing both support and overhead resistance.
HSBC's James Steel leans towards the view that gold prices will "grind higher," reasoning that the market has largely priced in monetary policy tightening expectations, while other risk factors generally lean towards supporting gold. He also noted that previous pessimistic expectations surrounding semiconductor and electronics demand may have been overpriced, while ETF demand is recovering. These factors collectively form a base of support for gold.
JPMorgan is more cautious, believing that upside potential will be significantly capped during the summer months, viewing the $4,197-$4,264 range as the key near-term resistance zone. Only a decisive break above this area would change the current medium-term bearish assessment.
Allocation Rationale: High Equity Market Optimism Highlights Gold's Hedge Value
Some analysis suggests that, from an asset allocation perspective, the rationale for holding gold has not been completely invalidated.
Equity markets have remained broadly resilient during this period of geopolitical conflict, with equity investors maintaining high optimism about AI prospects while showing relatively lower vigilance towards geopolitical and other potential risks.
This market state of "insufficient risk premium" is precisely a reason to retain a gold position as a hedge against tail risks.
Giovanni Staunono, Commodity Strategist at UBS Chief Investment Office, pointed out that the cost of holding gold is that it generates no yield. However, during periods of concentrated uncertainty, maintaining a certain allocation to gold to hedge against unforeseen risks holds reasonable portfolio significance for investors.
Currently, the confluence of technical signals, positioning structure, and physical demand provides the conditions for a potential directional breakout in gold. However, whether a sustained short squeeze can truly commence still depends on further clarity regarding Federal Reserve policy signals, US dollar movements, and the evolution of the geopolitical situation.
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