In August 2026, gold prices briefly approached a two-month high of around $4,400 per ounce, driven by geopolitical risk aversion, before quickly falling back to around $4,380. Market sentiment appears to still be supported by the Middle East conflict, but deeper macroeconomic forces are shifting. Combined with the current sharp sell-off in the bond market, Brent crude oil prices returning to around $90, and the upcoming July US CPI data, the sustainability of this gold rally is facing serious challenges. In the medium term, rising real interest rates and the Federal Reserve's repricing of its rate hike path may become the core factors suppressing gold prices. I. Rapidly Rising Bond Yields: Opportunity Cost of Holding Gold Increases Significantly The US Treasury market is becoming the clearest "warning signal." On August 11, the 10-year US Treasury yield touched 4.73%, near an 18-month high, rising more than 10 basis points in the past week; the 30-year yield rose to around 5.275%, reaching levels seen before the 2007 global financial crisis. Since the outbreak of the Gulf conflict at the end of February, the 10-year yield has cumulatively risen by more than 75 basis points. Higher nominal yields directly increase the opportunity cost of holding gold, a non-interest-bearing asset. More importantly, there is a simultaneous rise in real yields (measured by TIPS). When oil prices drive inflation expectations higher, but long-term yields rise even more significantly, real interest rates may continue to rise, which puts more direct downward pressure on gold. Large-scale debt issuance plans in the technology sector, the widening US fiscal deficit, and the continued increase in government borrowing demand further strengthen the upward pressure on long-term yields. Chris Turner, Global Head of Markets at ING, described the bond market as "a wrinkle on the horizon," noting that a bond sell-off could be one of the biggest threats to a benign market environment in the coming months. Historical experience shows that when real yields enter a clear upward trend, gold often struggles to sustain its strength, even with geopolitical safe-haven demand. Current yield levels are nearing key resistance levels; if this trend continues, the upside potential for gold prices will be significantly compressed. II. The Double-Edged Sword of Escalating Geopolitical Tensions: Short-Term Safe-Haven Demand Fails Against Medium-Term Interest Rate Transmission The situation in the Middle East has indeed provided short-term safe-haven support for gold. President Trump's tough demands for compensation from Iran on Truth Social, the stalemate in peace negotiations, the uncertain resumption of passage through the Strait of Hormuz, the ongoing Houthi attacks in the Red Sea, and the fact that Brent crude oil prices have tested and briefly surpassed the $90/barrel mark, with longer-term contracts remaining above $80, all point to a more complex geopolitical landscape. However, the impact of geopolitical conflict on gold is not entirely positive. Conflicts push up oil prices, which in turn raises global inflation expectations, forcing the market to reprice the Federal Reserve's policy path. The CME FedWatch tool shows that the probability of a September rate hike has risen to about 52%, significantly higher than the low 40% range following weak employment data. Persistently high oil prices will reinforce expectations of "higher and longer" interest rates, ultimately transmitting to gold prices through real interest rates and the US dollar. (Spot gold daily chart source: EasyTrade) In other words, the short-term safe-haven premium is being eroded by medium-term interest rate costs. The positive correlation between gold and oil prices is prone to breakage in the current environment—when oil price increases are mainly driven by supply shocks, and the Federal Reserve clearly prioritizes combating inflation, gold prices often fail to keep up with oil price increases, and may even diverge and fall. Several institutions have pointed out that if Brent crude continues to trade at high levels, gold prices may retest the $4,000 support level or even lower. III. Upcoming CPI: May Further Solidify Rather Than Reverse Interest Rate Hike Expectations The market is highly focused on the July US CPI data to be released on August 12. Analysts expect the monthly rate to rebound from -0.4% in June to +0.1%, with a year-on-year inflation rate of approximately 3.4%. The energy component is affected by oil prices, and monthly price pressure is expected to increase significantly. If the data meets or exceeds expectations, especially if core inflation or energy-related components perform strongly, it will further solidify the probability of a September interest rate hike and strengthen the upward trend in bond yields. Conversely, even with slightly weaker data, concerns about "sticky inflation" are unlikely to dissipate quickly given the continued pressure on oil prices. Federal Reserve Chairman Warsh has previously emphasized a commitment to bringing inflation back to the 2% target, clearly indicating a policy focus on combating inflation. At this juncture, the CPI is more likely to act as a catalyst for confirming the interest rate hike path than a reversal factor. Once interest rate expectations are anchored on a path of "at least one rate hike," the valuation logic for gold will face sustained pressure.