Global gold markets sent a powerful signal on Wednesday, August 5th, as spot gold prices surged over 4% to break through a seven-week high. The precious metal reached an intraday peak of $4,267.55 per ounce before settling at $4,246.79, marking its largest single-day gain since February. This rally was fueled by a combination of lower US Treasury yields, a significant weakening of the US dollar, and growing optimism surrounding Iran nuclear talks and the resumption of shipping through the Strait of Hormuz. After a prolonged correction that saw gold fall roughly 24% from its January all-time high of $5,595 and drop about 19% since the onset of the Iran war, the metal appears to be attracting capital back. Independent precious metals trader Tai Wong noted that with the probability of rate hikes having dropped markedly since last week, early-positioned investors are returning to the bullion market. The sharp decline in the dollar provided direct support, and the "pause" signal from the Iranian situation offered additional assistance. In early Asian trading on Thursday, August 6th, spot gold is trading with a slight gain of 0.25% around $4,260 per ounce.
The core driver behind this gold price surge stems from improvements in interest rates and the dollar environment. The yield on the 10-year US Treasury note hovers near a one-week low, while the 2-year yield has fallen to its lowest level since July 20th. According to federal funds futures, the market's probability of a September rate hike by the Federal Reserve has declined from nearly 70% earlier this week to just under 60%, with some traders pricing it as low as 55%. This shift directly reduces the opportunity cost of holding non-yielding gold. Concurrently, the US dollar index, which hit a six-week low on Monday, edged lower, falling 0.16% to 99.70 on Wednesday. A weaker dollar makes gold cheaper for overseas buyers, amplifying buying enthusiasm. The retreat of oil prices to around $80 per barrel has also lessened concerns about runaway energy inflation, reducing demand for the dollar as a safe haven.
A deeper layer of support comes from a subtle shift in geopolitical dynamics. US President Donald Trump publicly stated that his administration has been having "very good discussions" with Iran around the clock, adding that the Strait of Hormuz would reopen soon. Iran has also signaled positively: Deputy Foreign Minister Gharibabadi indicated that an agreement with Oman regarding commercial vessel passage through the Strait of Hormuz is nearing finalization. The new arrangement would close the traditional north and south shipping lanes, replacing them with a temporary new route that would see some commercial vessels transiting through Iranian territorial waters, expected to be usable for 2 to 4 months. Although Washington had previously insisted it would not accept Iran controlling passage through this critical global energy chokepoint, regional sources revealed that the proposed agreement might grant Tehran some control over the passage of ships entering the Gulf via the Strait. This is seen as one of the largest concessions made to Iran to date. Iran has sought to charge vessels a fee equivalent to 5% to 7% of their cargo value, while Oman has discussed a rate of around 3%. The US insists no fees should be charged. Structuring the fee as a "voluntary payment" could be a potential path to break the deadlock, though shipowners would likely still pay to ensure safe passage. This signal of a "pause," rather than a complete resolution, has allowed market sentiment to take a temporary breather from months of safe-haven and inflation panic. Oil prices were mixed, with Brent crude edging higher and US crude slightly lower, indicating cautious investor assessment of the possibility of resumed shipping. Meanwhile, risks from Houthi attacks on Saudi tankers and Red Sea tensions continue to limit further downside in oil prices, showing that geopolitical risks have not fully dissipated.
Despite the sharp short-term rally, the medium-to-long-term fundamentals for gold are far from fully warming. Data from the World Gold Council shows that global central bank gold demand in the first half of 2026 hit its lowest level since 2022. In the second quarter, gold-backed exchange-traded funds (ETFs) saw outflows of 45 tonnes, coinciding with a 14% drop in gold prices, the largest quarterly decline since 2013. JPMorgan noted in a report that with slowing central bank purchases, retail attention shifting to other areas, and weak Asian physical demand, rate-sensitive ETF flows have re-emerged as the dominant force determining marginal gold price movements. This suggests gold has partially reverted from a "central bank + geopolitical safe-haven" driven model back to a more traditional rate-sensitive asset logic. Tai Wong cautioned that for the precious metals sector to gain genuine momentum, the market must price in rate cut expectations, a scenario not expected to occur until at least 2027. In other words, the current rally appears more a result of short-covering and short-term expectation repair rather than confirmation of a trend-setting bull market. Technically, gold has found support after breaking above its 50-day moving average (around $4,160), but remains significantly below its January highs. If Hormuz negotiations hit a snag or Friday's US July employment report surprises to the upside, raising rate hike probabilities, gold's upward momentum could quickly fade.
The macro policy landscape is also fraught with uncertainty. Federal Reserve Governor Lisa Cook stated clearly on Wednesday that she is prepared to support a rate hike if necessary, should inflation not begin to cool. She emphasized that the risks to inflation outweigh those to the labor market, noting that inflation could become entrenched in corporate pricing and wage-setting behavior, creating more persistent pressure. Kansas City Fed President Jeffrey Schmid also believes that some degree of monetary policy tightening is needed to bring excessively high inflation back to the 2% target. On the other hand, the latest data sends mixed signals. The July ISM Services PMI came in at 54.1, indicating strong expansion in the services sector with a significant increase in new orders. However, the prices paid index, a measure of input costs, rose to 70.3, and supplier delivery times lengthened, with shortages of aluminum, electronic components, and steel persisting. The ADP report showed private sector employment increased by only 44,000 in July, below expectations, suggesting the labor market may have slowed from its spring acceleration. The nonfarm payrolls report on Friday will be a key test for the next phase, with the market generally expecting around 80,000 new jobs and the unemployment rate holding at 4.2%. The US Treasury offered a relatively calming signal, stating it would keep the size of fixed-rate coupon and floating-rate note auctions stable for at least the next few quarters, alleviating concerns about increased supply of long-dated government bonds. This is positive for the interest rate market and indirectly provides a respite for gold.
In conclusion, the sustainability of gold's interim rally hinges on whether the "pause" in geopolitical tensions can transform into a "turning point." The sharp price jump on August 5th was the result of a confluence of multiple positive factors: falling yields and a weaker dollar reduced holding costs, progress in Hormuz Strait negotiations alleviated energy inflation and geopolitical fears, and technical breakouts attracted short-term capital flows. However, this appears more like a technical rebound and sentiment repair within a prolonged correction rather than a fundamental reversal. Gold still faces headwinds from waning central bank buying appetite, weak Asian physical demand, and the potential for the Federal Reserve to maintain high interest rates or even hike further. If the agreement between Iran and Oman is finalized and shipping resumes, further declines in oil prices could help cool inflation, opening a window for rate cut expectations. Conversely, if talks collapse or geopolitical conflict escalates again, safe-haven buying may provide short-term support, but a rebound in energy inflation could strengthen rate hike expectations, creating a double squeeze on gold. Investors need to closely monitor Friday's employment data, subsequent US-Iran negotiation progress, and further statements from Fed officials. Only when rate cut expectations are genuinely priced in and geopolitical risks move from a "pause" to substantive de-escalation can gold hope to shed the gloom of the past half-year and find new upside. Until then, any single-day surge is more likely a correction of prior oversold conditions than the start of a new bull market.
As of 07:18 Beijing time, spot gold is quoted at $4,259.83 per ounce.
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