Recently, the correlation between global commodities and financial markets has significantly increased. Soaring oil prices, rising inflation expectations, soaring US Treasury yields, and rising expectations of a Federal Reserve interest rate hike have created a confluence of negative factors that have significantly suppressed gold prices. However, analyzing the market by combining new market data and macroeconomic policy developments reveals that the core negative factors currently suppressing gold have clear upper limits, while multiple potential positive factors continue to accumulate. Gold prices have not entered a downward trend and are currently in a relatively comfortable, slightly bullish, oscillating pattern.

Negative news chain: Oil prices, inflation, interest rate hikes, and US Treasury bonds all exert downward pressure on gold.

The core logic behind the current short-term pressure on gold prices is quite clear, forming a complete chain of negative transmission. Affected by the ongoing geopolitical conflict between the US and Iran, international oil prices have recently surged, with Brent crude rising by 6.3% in a single day, reaching $107.63 per barrel. High oil prices have directly boosted overall market inflation expectations. Coupled with strong US wholesale inflation data, market expectations for a hawkish stance from the Federal Reserve have rapidly increased. Data shows that the probability of a rate hike at the Fed's September meeting has climbed to 71%, a significant increase from previous levels. This rising expectation of a rate hike has further triggered a sell-off in US Treasuries, with prices continuing to fall and yields rising sharply. The 10-year Treasury yield is approaching the key 5% mark, reaching a new high since October 2023. As a non-interest-bearing asset, gold is directly affected by rising US Treasury yields, which increase its opportunity cost of holding, becoming the core negative factor suppressing gold prices in the short term. This is also the direct reason for the recent weak and volatile gold price.

Negative Factors Analysis: All Suppressive Factors Have Clear Ceilings

However, a closer analysis of the various negative factors reveals that the current downward pressure on gold prices is limited in duration, with core negative factors nearing their end and exhibiting clear ceilings. Oil price increases are losing momentum, limiting further inflationary potential . Firstly, the upward momentum in oil prices is weakening, limiting further inflationary potential. The current oil price surge driven by geopolitical conflicts is not an unlimited, one-sided trend. The global crude oil market has already achieved supply and demand rebalancing through multiple channels. Although the US-Iran conflict is likely to continue for a long time, the market has gradually adapted to the high oil price environment, and the panic-driven price surge has subsided. A sustained and significant surge in oil prices is unlikely. This means that imported inflationary pressures driven by oil prices will gradually ease, and market inflation expectations will not continue to spiral out of control, fundamentally weakening the inflationary negative logic suppressing gold prices. US Treasury sell-off supported by policy, slowing yield increases . Secondly, the one-sided sell-off in US Treasuries is about to cool down, and the upward potential of long-term yields is locked in by policy. Faced with the disorderly surge in US Treasury yields and the continued rise in financing costs, the US Treasury has introduced strong support policies, significantly increasing the scale of long-term bond repurchases, tripling the previous amount for a single long-term bond purchase, and making every effort to stabilize the long-term US Treasury market. Market patterns show that a policy bottom often follows closely behind. Currently, the US economy does not face the risk of a systemic recession, and its economic fundamentals are resilient enough to withstand bond market fluctuations. The Treasury's large-scale bond-buying operations have solidified a policy floor for long-term US Treasury prices, completely ending the trend of unrestrained selling of US Treasuries. The subsequent rise in long-term US Treasury yields will slow significantly, and may even see a phased decline, gradually easing the interest rate pressure that has been suppressing gold prices.

There is an upper limit to the expectation of interest rate hikes, and there is no room for continued tightening policies.

Finally, there is a clear upper limit to the Fed's interest rate hike expectations. This round of rate hikes is likely a phase-ending move, with no room for continued tightening. Looking back at this monetary policy cycle, the US had been in a long-term interest rate cut cycle. At the beginning of the year, geopolitical conflicts triggered a major reversal in market expectations for rate cuts. After several months of market recovery, the current expectation is only for a single rate hike, not the start of a new round of sustained rate hikes. Considering the core political and economic contradictions in the US right now, the midterm elections are a crucial window, and voter sentiment is highly correlated with inflation, stock market, and housing market performance. The current inflationary pressure from oil prices is difficult for the US to quickly control through policy; the market can only adapt to the high oil price environment. If the Fed continues to aggressively raise interest rates, it will directly damage the stock market and housing market, triggering voter dissatisfaction and impacting the election landscape. Therefore, the Fed's policy will remain restrained, and it will not introduce overly aggressive rate hikes. This round of rate hikes is basically the end of this tightening cycle, with no room for further rate hikes. The core support for the continued rise in US Treasury yields is the expectation of rate hikes. Once the room for rate hikes reaches its peak, the upward logic of US Treasury yields will completely collapse.

Multiple potential positive factors provide solid support for gold prices.

While negative factors are largely limited, multiple positive factors for gold are accumulating, providing solid support for gold prices. On the one hand, the US fiscal risk continues to escalate. Trump's promise to issue $5,000 checks to the public will add over $1 trillion to the fiscal deficit. Coupled with the high level of long-term US debt, the risk of a debt crisis remains, highlighting gold's safe-haven and anti-debt devaluation attributes. On the other hand, the US Treasury's increased long-term bond buybacks and large-scale fiscal subsidies are continuously releasing liquidity into the market, and the loose liquidity environment directly benefits gold prices. Compared to the stock market, which is suppressed by multiple factors including bond market volatility, interest rate hike expectations, and the historically weak market performance in September, the gold market fundamentals are healthier, and the balance of power between bulls and bears continues to improve.

Overall Outlook: Limited Negative Factors, Gold Price Situation Remains Stable with a Slightly Positive Bias

Overall, the current gold market presents a favorable situation with limited downside risks and a solid foundation for upside: limited upside for inflation, interest rate hike expectations locked in by both policy and political factors, and a gradual cooling of the US Treasury sell-off, all weakening the core factors suppressing gold prices; meanwhile, positive factors such as debt risk dynamics and ample liquidity continue to exert their influence. While short-term gold prices may fluctuate slightly due to market sentiment, the medium-term trend is stable, placing it within a comfortable trading range that balances offense and defense, thus warranting no excessive bearish sentiment. (Spot gold daily chart, source: EasyTrade) At 18:43 Beijing time, spot gold is currently trading at $4345 per ounce.