Spot gold prices rose 1.3% on Wednesday (July 22) to settle at $4,129.79 an ounce, after hitting a two-week high of $4,165.92 during the session. August gold futures surged even more, rising 1.9% to settle at $4,151.90. This rally was driven by a slight weakening of the US dollar, technical buying, and a sharp escalation of geopolitical tensions in the Middle East. Investors are holding their breath awaiting next week's Federal Reserve interest rate decision, while inflation concerns triggered by soaring oil prices to near six-week highs have further amplified risk aversion in the market. In early Asian trading on Wednesday (July 23), spot gold traded in a narrow range around $4,120 an ounce.

Escalating Geopolitical Conflict: Risk of "Double Blockade" of the Strait of Hormuz and the Bab el-Mandeb Strait

Tensions in the Middle East have become the strongest support for gold prices. The conflict between the US and Iran has continued for several days, with the US military conducting airstrikes against Iranian targets for the 12th consecutive night. President Trump has stated explicitly that if Iran attacks any ships in the Strait of Hormuz, the US will destroy Iranian bridges or power plants. This hardline stance has further escalated the situation. Meanwhile, the Iranian-backed Houthi rebels in Yemen have opened a new front, threatening to blockade the Bab el-Mandeb Strait and claiming to have attacked two Saudi oil tankers. The "Enseria" was hit by a missile in the Red Sea and caught fire, requiring the crew to extinguish the blaze. The Houthis announced a naval blockade of Saudi Arabia, forcing several oil tankers to divert or return to port. Shipping security risks in the Red Sea have increased sharply, and the EU naval escort operation has issued a warning, advising relevant vessels to avoid the area. Iran has responded tit-for-tat, warning of retaliatory attacks on regional oil, gas, and economic infrastructure, and claiming to have laid mines along the southern coast of the Strait of Hormuz. The conflict has resulted in casualties on both sides, and the US has deployed additional troops, medical personnel, and weapons to the Middle East in preparation for a possible expansion of military operations. These chain reactions have directly increased the risk of global energy supply disruptions and significantly enhanced the attractiveness of gold as a traditional safe-haven asset.

Soaring oil prices are putting inflationary pressure on gold, creating a "double boost."

The impact of oil prices on gold is rapidly becoming apparent. Brent crude futures surged 3.36% to $94.07 a barrel, hitting a six-week high of $95.47 during the session; U.S. crude also rose nearly 3% to $86.83. The dual threats from the Red Sea and the Strait of Hormuz have forced Asian refineries to adjust their shipping routes, with some opting for the Suez Canal or circumnavigating Africa, further increasing transportation costs and supply uncertainty. The sharp rise in oil prices has directly boosted market expectations for inflation. The yield on the two-year U.S. Treasury note hit a 17-month high, and the 10-year yield also rose, while the breakeven yield on five-year TIPS rose to 2.31%. Investors are concerned that the transmission of energy prices will reignite inflation, and the Federal Reserve may be forced to adopt a more hawkish monetary policy response. In this environment, gold's inflation-hedging and safe-haven properties are simultaneously activated, making it an important choice for investors to hedge risks.

A weaker dollar and technical buying: Gold prices break through key resistance.

Besides geopolitical factors, the slight decline of the US dollar index by 0.1% to 101.12 also provided strong support for gold. Gold priced in US dollars became cheaper for overseas buyers, attracting significant bargain hunting. FXTM Senior Research Analyst Lukman Otunuga pointed out that gold prices broke through the $4140 mark, with a weakening dollar and technical buying injecting new momentum into the bulls. However, analysts also cautioned about potential negative factors. Rising oil prices could strengthen expectations of a Fed rate hike, thus limiting gold's upside potential to some extent. But current market sentiment remains primarily risk-averse, and the upward momentum driven by the technical breakout is expected to continue in the short term.

With the Fed decision approaching, the rising probability of a rate hike will test the resilience of gold prices.

Investors are currently focused on next week's Federal Open Market Committee (FOMC) interest rate decision. The CME Group's FedWatch tool shows a 76% probability of a rate hike in September and a 90% probability of a rate hike before the end of the year. Recent hawkish comments from Fed Governor Waller have further reinforced this expectation. The market believes that if inflation data exceeds expectations due to energy prices, the Fed may act later this year or even earlier. Rising interest rates typically put pressure on non-interest-bearing gold, but the current severity of the Middle East conflict may outweigh this negative factor. Historical experience shows that gold tends to remain strong during periods of geopolitical crisis coupled with economic uncertainty, even in the face of rising interest rates. Gold prices are currently significantly higher than previous levels, indicating that the market is pricing in long-term uncertainty.

Outlook: The bullish trend in gold is likely to continue, but a policy turning point should be watched closely.

In summary, this round of gold price increases is the result of a combination of geopolitical risks, the dollar's performance, inflation expectations, and technical factors. The Middle East's "two straits" crisis is unlikely to be resolved quickly in the short term, which will continue to provide safe-haven support for gold. With the US election approaching, rising gasoline prices are also putting pressure on the Trump administration, potentially influencing the toughness of its policy decisions. However, investors cannot ignore the potential hawkish shift of the Federal Reserve. If next week's FOMC meeting releases stronger signals of interest rate hikes, or if oil prices correct after supply adjustments, gold may face profit-taking pressure. But from a medium-term perspective, as long as geopolitical conflicts do not significantly de-escalate, gold's status as the ultimate safe-haven asset is unlikely to be shaken. In the current climate of heightened global uncertainty, gold has once again proven its unique value in investment portfolios. Regardless of the Fed's final decision, the evolution of the Middle East situation will be a key variable determining the next stage of gold price movement. Investors need to closely monitor shipping safety, oil price dynamics, and the latest statements from Fed officials, and manage risks effectively to seize opportunities in this gold price rally. (Spot gold daily chart, source: FX678) At 07:30 Beijing time, spot gold is currently trading at $4119.59 per ounce.