Gold: Erases its gains to fall sharply as oil prices continue to rise
Performance
Intensifying US-Iran conflict weighed on
gold prices on Thursday as crude oil prices surged further. At the time of writing this article on Thursday, gold was trading with a steep loss of 2 per cent at $4,049.
Earlier, supported by tentative safe-haven demand as the Trump administration began imposing fresh tariffs and by dip buying as the yellow metal held above $4,000, gold defied downside pressure from rising oil prices and surged to $4,167 on Wednesday.
Geopolitics and oil
US President Trump said on Thursday that he is close to making a decision on a massive strike on Iran, though he did not provide a deadline.
The US continued to strike Iran for the twelfth straight night on Wednesday. Iran, in retaliation, continued to hit US installations in neighbouring countries and attacked a desalination plant in Kuwait.
Iran also attacked multiple CIA centres in the Gulf with drones, prompting US intelligence to investigate whether Russia had helped Iran with the Kometa-M satellite navigation system to improve the accuracy of its Shahed-136 drones. The US has not disclosed the locations of the CIA centres.
Heightening tensions, Iran has threatened to bomb its own country should the US launch a ground invasion.
Trump has warned that the US would strike Iran's powerhouses and bridges should Iran attack ships in the Strait of Hormuz.
Oil supply concerns have amplified once again following Yemeni Houthis' attacks on ships in the Red Sea, as nearly 6 mbpd of crude oil transits through the Bab-al-Mandeb Strait.
Brent crude oil surged for the fifth consecutive day on Thursday, hitting the $100 mark for the first time since May 26 on growing fears of an oil supply crunch. At the time of writing this article, Brent crude futures were trading at $100.84, up nearly 7 per cent for the day.
Data roundup
This week has been light on data. Thursday's US data showed that initial jobless claims (week ending July 18) fell from 209K to 187K (forecast: 210K), the lowest level since 1969, while continuing claims (week ending July 11) slipped from 1,798K to 1,796K (forecast: 1,809K). The Kansas City Fed Manufacturing Index eased from 11 in June to 9 (forecast: 12).
Central bank watch
As widely expected, in its monetary policy decision on July 23, the European Central Bank kept its benchmark rate unchanged. However, as some members contemplated a rate hike, the bank is expected to raise rates in September. ECB President Lagarde said that risks to the inflation outlook remain on the upside.
The US Federal Reserve will conclude its FOMC monetary policy meeting on July 29.
The Bank of England will announce its monetary policy decision on July 30.
US to announce plans on expiring tariffs
US Trade Representative Jamieson Greer will soon announce the administration's tariff plans, the White House said, as the global 10 per cent baseline levy is set to expire.
Fed rate hike probability
Implied overnight futures reflect 0.92 rate hikes by September. The probability of the Fed raising rates remains elevated, as traders are pricing in 1.09 rate hikes by September, with another rate hike potentially coming as early as March next year.
The probability of a rate hike in September stands at 83 per cent, while the probability of a rate hike in December has increased to 93 per cent from 77 per cent a week ago.
ETF and COMEX inventory
Total known ETF holdings of gold increased for the second straight day on July 22. Holdings, currently at 96.43 Moz, are down 2.52 Moz YTD (down 2.54 per cent, or 79 tons) and have declined 4.49 Moz (4.45 per cent, or 137 tons) since the beginning of the Iran war on February 28.
Registered COMEX inventory, at 14.85 Moz, remains near a cycle low and is down 38 per cent from the record peak of 24.25 Moz seen in April.
Dollar Index and yields
At the time of writing this article, the US Dollar Index, at 101.48, was up 0.35 per cent for the day as higher yields and falling risk assets boosted the index. The cycle high is 101.80.
Two-year US Treasury yields spiked to 4.36 per cent, the highest since February 12, 2025, on rate hike concerns. The next major resistance lies at 4.40 per cent.
Similarly, 10-year US Treasury yields surged to 4.7 per cent, the highest since January 2025.
Upcoming data
Major US data due in the short term include S&P PMIs (July 24), Conference Board Consumer Confidence (July 28), real personal spending, Q2 advance GDP, and the Fed's preferred inflation gauge, the PCE Price Index (all on July 30).
Traders will also monitor Eurozone PMIs (July 24), along with Eurozone and Germany Q2 GDP data (July 30). UK PMIs will be released on July 24.
Outlook
Spot gold showed tentative signs of stabilisation at the beginning of the week despite soaring oil prices and elevated yields. However, as oil prices spiked further, the metal came under pressure.
The metal remains stuck in the $3,950-$4,200 range as traders monitor the US-Iran conflict and oil prices.
Elevated expectations of a Fed rate hike are bearish for the metal, but the downside is expected to remain limited due to dip buying amid tariff concerns, unless crude oil prices rise sharply from current levels.
Range-bound trading between $3,950 and $4,200 is likely to continue. Immediate support is seen at $4,000 and $3,950, while resistance is placed at $4,100, $4,170, and $4,200.
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(Disclaimer: This article is by Praveen Singh, Head of Commodities at Mirae Asset Sharekhan. Views expressed are his own.)
 "Higher oil prices may outweigh safe-haven demand for gold: Mirae Asset")
