A weaker US dollar combined with easing expectations in the Middle East are driving a double boost that supports gold's rebound

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Source: Huitong Finance

According to reports, on Wednesday spot gold prices edged up by about 0.48%, to around $4,697 per ounce. During the day the highest point touched about $4,712, setting a new high in nearly two weeks. The move was mainly supported directly by a weaker U.S. dollar. COMEX gold futures also rose in tandem, with the April contract once rising to above $4,710. In comments, Marex analyst Edward Meir noted that the notion that the U.S. could end the conflict within two to three weeks even if the Strait of Hormuz is not fully reopened has significantly boosted U.S. stocks and also driven a rebound in gold prices. However, he also emphasized that if inflation expectations pick up again, interest rates may rise further, which would limit the upside space for gold prices. This view is highly consistent with the current market consensus: before the outbreak of the conflict, investors expected the Federal Reserve to cut rates at least twice this year; now the market has almost completely ruled out any rate cuts within the year.

In a recent analysis, strategist Christopher Wong said that if geopolitical tensions ease further, market expectations for the Federal Reserve to loosen monetary policy could return. In that case, real yields are expected to decline, providing important support for gold prices. He pointed out that the current 10-year TIPS real yield is still staying above 2.0%, which remains the biggest obstacle for gold prices. Combined with the latest U.S. CPI data coming in slightly above expectations, the probability of the Federal Reserve maintaining a hawkish stance has risen significantly. To clearly show the contrast between the current driving factors, the table below summarizes the differences in how expectations of geopolitical easing versus macro tightening pressure affect gold prices:

Looking deeper, the rebound in gold prices this time is essentially the combined result of a technical correction and a recovery in risk appetite. After the conflict broke out, gold prices had once pulled back sharply from their highs, driven by a surge in oil prices and demand for safe-haven assets. But as signals related to “ending the conflict within two to three weeks” were released, market risk sentiment improved quickly, and the decline in the U.S. Dollar Index further amplified the appeal of commodity prices. However, the Federal Reserve’s policy path shows that, given inflation pressure driven by energy prices, the easing window has been pushed back significantly—meaning the cost of holding gold, a non-yielding asset, remains high. Looking ahead, if the situation in the Middle East continues to ease and there is no new geopolitical shock, gold prices may likely oscillate and build a base in the short term within the $4,680–$4,720 range; but to return to $5,000 or even challenge prior highs, it still requires a genuine recovery in rate-cut expectations from the Federal Reserve or a significant drop in oil prices. At present, the latter is difficult—the international oil price has recently surged to record highs, and the inflation transmission effect is still fermenting. Investors may watch next week’s U.S. ADP employment data and subsequent inflation indicators as key signals for judging the Federal Reserve’s policy path.

Editor’s Summary

Wednesday’s mild rebound in gold prices highlights the short-term dominance of the dollar and geopolitical factors, but macro headwinds from the high-yield environment and strong expectations for the Federal Reserve remain strong. The market has shifted from optimistic sentiment before the war to more realistic and cautious thinking. Gold prices may maintain a range-bound pattern in the short term, while the longer-term trend will still depend on the balance of the tug-of-war between how geopolitical risks evolve and how monetary policy actually turns.

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Byline: Guo Jian