Last week, the London spot gold price closed at $4,120 per ounce, representing a weekly decline of 1.3%. Domestically, the AU9999 gold price concluded at 897 yuan per gram, down 1.4% week-on-week.
Key Market Drivers
The primary downward pressure on gold prices last week stemmed from rising oil prices, which were fueled by a renewed escalation in tensions between the United States and Iran, reigniting conflict over control of the Strait of Hormuz. On July 7th, the U.S. military launched a large-scale airstrike against Iran, citing Iranian attacks on commercial vessels in the strait. Concurrently, the U.S. Treasury Department revoked a temporary license for Iranian oil sales. In the following week, U.S. forces conducted three consecutive strikes against Iran. Iran responded by targeting U.S. military assets in the Middle East and announced the closure of the Strait of Hormuz effective July 12th. This resurgence of geopolitical risk triggered a rebound in oil prices from around $72 to $79, while also boosting market expectations for interest rate hikes, which weighed on gold.
Central Bank Activity
Positive signals emerged from central bank gold purchases. Data released by the People's Bank of China on July 7th showed that China's gold reserves reached 75.44 million ounces (approximately 2,346.446 tonnes) at the end of June. This represents a monthly increase of 480,000 ounces (about 14.93 tonnes), marking the largest single-month gain in nearly two and a half years and the 20th consecutive month of accumulation. Against the backdrop of a weakening U.S. dollar credit system, the trend of central banks globally diversifying their foreign exchange reserves is expected to persist.
Market Outlook
Looking ahead, the U.S.-Iran situation and expectations regarding Federal Reserve policy remain the key variables influencing gold's short-term trajectory. While market expectations for Fed rate hikes have currently reached extreme levels, we believe practical constraints will limit the scope for further tightening, and excessive concerns are likely to be revised. From a medium- to long-term perspective, the structural factors supporting gold—including global central bank purchases, the rebalancing of reserve structures, and U.S. fiscal pressures—remain intact despite short-term volatility. A potential correction of short-term pessimism, coupled with the continuation of these long-term drivers, is expected to underpin the gold price.
Focus for the Coming Week
Key signals for gold investors to monitor in the upcoming week include: (1) U.S. inflation data for June, and (2) developments in the U.S.-Iran situation.
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