On July 9th, the international gold market staged a dramatic reversal. After declining for three consecutive sessions, spot gold staged a strong rebound on Thursday, July 9th, gaining over 1% to reclaim the crucial $4,100 per ounce level. Just a day earlier on Wednesday, the price had fallen to its lowest point since July 1st at $4,021.70 per ounce. By the close in New York on Thursday, spot gold was quoted at $4,123.83 per ounce, having traded in a range between $4,054.39 and $4,138.06 during the session. The more actively traded August U.S. gold futures contract settled 1.4% higher at $4,140.80 per ounce.
The rally was not confined to gold alone. Silver, platinum, and palladium also posted gains exceeding 3%, indicating a broad-based surge across the precious metals complex rather than an isolated move in gold. The session saw gold open lower before climbing, with an early dip towards $4,050. Trading was volatile with intense battles between bulls and bears, but buyers ultimately prevailed, not only recouping the previous day's losses but also pushing decisively above the $4,100 mark. The intraday rebound from the low to the high exceeded 80 points.
One market strategist noted, "After Wednesday's decline, we saw some bargain-hunting emerge." This observation accurately captured the market's underlying sentiment, suggesting that dip-buying interest was beginning to stir around the $4,020 level.
Geopolitical Ripples
The rebound followed reports that the U.S. military had conducted strikes against Iran for a second consecutive day, targeting infrastructure such as bridges, airports, and ports. Iran's armed forces retaliated by attacking U.S. military facilities in Gulf countries. Iranian officials stated that targets in Kuwait, Qatar, and Bahrain were hit, with state media reporting that the U.S. airstrikes had resulted in 14 deaths and 78 injuries across five provinces. The heightened tensions were further underscored by the funeral held that day for Iran's Supreme Leader Khamenei, who was killed in a U.S. airstrike on the first day of the conflict on February 28th.
The U.S. military stated that its latest strikes aimed to ensure the Strait of Hormuz remained navigable, following previous Iranian attacks on three tankers in the region. The U.S. also reported hitting areas on the periphery of Iran's Bushehr nuclear power plant.
However, the impact of geopolitical conflict on gold is not as straightforward as the traditional "buy gold in a war" logic. Since the outbreak of U.S.-Iran hostilities, a more complex transmission mechanism has emerged: conflict pushes oil prices higher, which fuels inflation expectations, which in turn strengthens the perceived necessity for the Federal Reserve to raise interest rates. Higher interest rate expectations are a significant headwind for non-yielding assets like gold. Consequently, a seemingly paradoxical dynamic has been observed: more intense conflict leads to higher oil prices, which in turn puts more pressure on gold.
A potential shift occurred on Thursday, however, as former U.S. President Trump stated that "Iran called earlier, they want to make a deal." This news quickly cooled market fears of escalating tensions. According to sources from two mediating countries and a U.S. official, regional mediators including Qatar and Pakistan were actively working to de-escalate U.S.-Iran tensions to create space for reviving nuclear negotiations. Officials from these countries, along with Turkey, Egypt, and Saudi Arabia, held multiple calls with both sides on Wednesday in an attempt to stabilize the situation amidst the military escalation.
A regional source involved in the mediation indicated that the immediate focus was on de-escalation, with the timing for the next round of technical talks to be determined later. This suggested an effort to pull the parties back onto a diplomatic track. A U.S. official stated that the administration remained "committed to seeking a solution," with technical-level consultations ongoing.
This news prompted a retreat in oil prices from session highs. U.S. crude oil fell approximately 2.65% to $71.57 per barrel, while Brent crude dropped about 2.95% to $75.72 per barrel. The decline in oil prices helped temper inflation expectations, subsequently pushing down U.S. Treasury yields and the U.S. dollar, creating room for gold's rebound. The yield on the 10-year Treasury note fell nearly 3 basis points to 4.537%, after touching a seven-week high the previous day. The two-year yield declined 3.7 basis points to 4.164%. The U.S. Dollar Index fell for a second consecutive day, dropping 0.15% to 100.87.
The Fed's Hawkish Stance: The Persistent Shadow of Rate Hikes
If geopolitics acts as a "gas pedal" for gold, then Federal Reserve monetary policy is its "brake"—and that brake is currently being applied firmly. Market monitoring tools indicate traders currently assign about a 62% probability to a rate hike in September. While the probability for a July hike has receded to around 26% from approximately 31% on Wednesday, expectations for September remain elevated. The probability distribution suggests a 31.1% chance of no change by September, a 51.9% chance of a cumulative 25 basis point hike, and a 17.0% chance of a cumulative 50 basis point hike.
Market concerns about rate hikes are not unfounded. Minutes from the Fed's June 16-17 meeting revealed policymakers' growing worries about high inflation, with some participants seeing a case for immediate rate increases. This was the first meeting chaired by the new Chair, Warsh, and its hawkish tone unsettled markets. One economist noted, "The minutes reaffirmed that the door for a September hike remains open."
New York Fed President Williams stated on Thursday that he did not expect a sustained rise in energy prices for the remainder of the year, despite renewed hostilities in the Middle East. This comment helped soothe fears of runaway inflation and provided a brief respite for gold's recovery.
Against this backdrop, institutional views on gold's prospects have diverged significantly. One major bank lowered its average gold price forecasts for 2026 and 2027 to $4,560 and $4,925 per ounce, respectively, from previous estimates of $4,864 and $5,000. The bank expects gold to trade between $3,800 and $4,700 for the remainder of 2026. The bank's chief precious metals analyst stated in a report, "Prices have fallen more than anticipated this year. The Fed's hawkish pivot and our foreign exchange research team's expectation for a stronger U.S. dollar prompted our forecast revision."
Another U.S. bank also adjusted its gold price forecast, lowering its 2026 average price expectation by 14% to $4,360 per ounce. A European bank revised its third-quarter gold price target down to $4,300, a reduction of over one-fifth from its prior expectation.
However, not all institutions are pessimistic. One European commercial bank forecasts an average 2026 gold price around $4,631 per ounce, with a year-end target near $4,800 for the fourth quarter. An analyst at Sprott Money suggested the weak period for precious metals might be nearing an end, as Fed policy could soon pivot towards the original goal for which Chair Warsh was selected—lowering net interest costs via rate cuts. Another institution is bullish on gold's medium-to-long-term prospects benefiting from stagflation and geopolitical uncertainty, with a twelve-month price target of $5,500.
Structural Support vs. Short-Term Headwinds
Despite short-term headwinds from rate hike expectations, gold is not without underlying support. From a medium-to-long-term perspective, structural pillars like central bank gold purchases and de-dollarization trends remain firm. An industry survey shows 89% of central bank reserve managers expect global central bank gold reserves to continue increasing over the next 12 months. This week, the People's Bank of China reported its gold reserves rose for a 20th consecutive month in June, adding 480,000 ounces.
Some institutions acknowledge that while they have lowered price forecasts, the downside for gold may be limited as the market has largely priced in a macro environment of a strong dollar and elevated interest rates. Several fundamental factors that supported gold prices before the Middle East conflict erupted remain in place, including fiscal deficit concerns, economic uncertainty, and heavy sovereign debt burdens.
Nonetheless, short-term challenges are evident. Global gold-backed ETFs saw outflows of 74.3 tonnes (approximately $8.9 billion) in June. Global gold ETF assets under management fell 13% to $526 billion. North American gold ETFs experienced outflows of $5.5 billion in June, bringing the net outflow for the first half of the year to $7.7 billion, the weakest H1 performance since 2013. One institution noted that June ETF flows signal that allocation funds have not yet returned to gold, suggesting the recent rebound is more likely a technical recovery from oversold conditions rather than the start of a new wave of active buying.
Other analysis suggests gold may remain in a range-bound, low-level consolidation in the short term. Geopolitical flare-ups will provide intermittent support, but energy-driven inflation and the Fed's hawkish bias are likely to cap the upside. Key factors to watch include the evolution of the U.S.-Iran conflict, oil price movements, Fed official commentary, and the trajectory of the U.S. dollar and Treasury yields.
Outlook: Three Key Variables Shaping Gold's Path
Looking ahead, the direction of the gold market will hinge primarily on three key variables. The first is the evolution of geopolitics. Whether the U.S.-Iran conflict escalates further or moves towards de-escalation will directly determine oil price movements, thereby influencing inflation expectations and the Fed's policy path. Renewed escalation could send oil prices soaring,加剧inflationary pressures, and strengthen Fed hike expectations, putting greater downward pressure on gold. Conversely, de-escalation and lower oil prices could marginally ease interest rate pressures, allowing gold a chance to recover from lower levels.
The second variable is U.S. economic data, particularly inflation figures. Investors will closely watch next week's inflation data and Fed Chair Warsh's congressional testimony. The next major focus will be the U.S. CPI data for July, released on July 14th, which is the most important inflation report before the July policy meeting. A continued decline in CPI would validate the economic cooling trend suggested by recent jobs data, potentially leading to a further revision of rate hike expectations and creating more room for gold to recover. Stubbornly high inflation, however, could reinforce high-rate expectations and limit gold's rebound potential.
The third variable is the Federal Reserve's policy signals. Chair Warsh's congressional testimony will provide further clues on the monetary policy trajectory. While market expectations for one rate hike this year persist, expectations for rate cuts have not meaningfully increased. The market appears to be pricing a "slowdown in tightening trades" rather than "easing expectations." The distinction between these narratives will determine gold's medium-term direction.
From a technical perspective, although gold touched a two-day high of $4,138, the overall trend remains bearish. Short-term momentum has turned bullish, but for bulls to confirm the end of the downtrend, they need to push the price above the descending resistance trendline in the $4,190 to $4,215 area.
As of the latest update, spot gold is trading at $4,122.91 per ounce.
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