On Monday, as U.S. President Donald Trump told reporters on Air Force One that the U.S. has "enough patience to reach a new deal with Iran," the international gold market had just experienced a dramatic session. Spot gold gapped open nearly $40 higher to around $4,096, briefly spiking to $4,115 during the session before giving back most of those gains to close at $4,076.46, a modest increase of about 0.5%. Meanwhile, Brent crude oil futures plunged over 8%, breaking below the $90 per barrel mark.

This divergence between the two assets reflects a deep paradox currently facing the gold market. The easing of geopolitical tensions should, in theory, weaken safe-haven demand. However, the cooling of inflation expectations driven by the sharp drop in oil prices has instead opened a window for gold. Gold is at a crossroads, pulled by multiple forces—the pause in the U.S.-Iran conflict, the sharp oil price slump, a strengthening U.S. dollar, and the upcoming Federal Reserve interest rate decision—all weaving a complex web. In early Asian trading on Tuesday, spot gold is trading in a narrow range, currently around $4,072.99 per ounce.

From Firepower to Negotiations: The Unexpected Benefit of Geopolitical Easing

Over the past two weeks, tensions in the Gulf region reached a boiling point. The U.S. launched airstrikes against Iran for 13 consecutive nights, while Iran retaliated against U.S. bases in the Middle East. The U.S.-Iran conflict, which began on February 28, reignited less than a month after both sides signed a memorandum of understanding on June 17. Mediation efforts by Pakistan, supported by Qatar, failed to achieve any breakthrough. Iranian Foreign Ministry spokesperson Esmaeil Baghaei clearly stated that Iran is only concerned with its national interests, not America's expectations, and accused the U.S. of first violating the memorandum of understanding.

However, the situation took a dramatic turn last Friday (July 24). Just hours after Trump threatened to consider an unprecedented large-scale attack on Iran, Axios reported, citing sources, that the top U.S. military commander in the Middle East, Admiral Brad Cooper, had recommended stopping the bombing campaign, stating its effects had become saturated. More critically, Chairman of the Joint Chiefs of Staff General Dan Caine privately warned that U.S. air defense interceptors were nearly depleted, potentially weakening America's ability to protect itself and its allies in the region. Trump subsequently ordered the suspension of the planned large-scale attack. Iran responded accordingly, stating it would maintain the ceasefire as long as the U.S. continued its pause. U.S. Ambassador to the UN Mike Waltz later said on NBC that Trump wanted to leave some room for negotiations. Trump himself said on Monday that U.S.-Iran negotiations were "going well," adding, "I think something is likely to happen." While denying formal negotiations with the U.S., Iranian Foreign Ministry spokesperson Baghaei acknowledged that information exchanges between the two sides do exist.

This series of events forms the core narrative for the short-term movements in the gold market. The sudden emergence of a potential diplomatic solution to the five-month U.S.-Iran war directly triggered a massive sell-off in the crude oil market.

The Cascading Effect of Oil's Plunge: Gold's Unexpected Ally

Understanding the oil price trajectory is key to grasping current gold price fluctuations. On Monday, Brent crude futures fell over 8%, hitting a one-week low of $87.47 per barrel. Just the previous week, oil prices had briefly surpassed $100 per barrel amid the escalating U.S.-Iran conflict. Bart Melek, Global Head of Commodity Strategy at TD Securities, provided a precise summary: "What we're primarily seeing is oil falling from over $100 last week to below $90, which is driving market expectations for the interest rate outlook lower."

This assessment reveals the subtle transmission chain between gold and oil. Gold has long been viewed as a hedge against inflation, but the market's reaction to inflation is not linear. When rising oil prices boost inflation expectations, the market tends to bet on the Fed raising rates to curb inflation. Higher interest rates increase the opportunity cost of holding gold, a non-yielding asset, thereby suppressing its price. This was the root of the paradoxical phenomenon where "oil rises, gold falls." However, when oil prices collapse, inflation worries ease, and market expectations for further Fed tightening diminish, providing support for gold.

Analysts also note that after mediators in the U.S.-Iran conflict proposed a ceasefire, growing expectations for a de-escalation pressured the recently rebounding oil prices. This, in turn, reduced energy-related inflation pressures and lessened market concerns about further Fed tightening, thereby supporting gold prices. In essence, oil has transformed from an "inflation catalyst" into an "interest rate hike pressure valve," offering gold an unexpected opportunity for a rebound. The sharp decline in crude oil prices helped alleviate inflation concerns and dampened Fed rate hike bets, which the market interprets as a supportive factor for gold.

The Dollar's Comeback: A Ceiling for Gold's Rally

However, gold's upward momentum was not sustained. After hitting the $4,115 high, spot gold retreated to around $4,075. The primary source of pressure behind this pullback was the strong U.S. dollar. The U.S. dollar index hit a four-week high of 101.54 on Monday, closing at 101.53, up about 0.1%. Notably, the dollar index initially fell 0.33% to 101.11 in early Asian trading but fully recovered and turned positive. This suggests that while geopolitical easing put short-term pressure on the dollar, market expectations for the Fed's policy path continue to support it.

The seesaw relationship between the dollar and gold is particularly evident in the current market. Geopolitical easing put some pressure on the dollar as a portion of the geopolitical risk premium was removed. However, traders seem reluctant to take aggressive bearish bets on the dollar, choosing instead to wait for more clues about the Fed's policy trajectory. Meanwhile, U.S. economic data also provided support for the dollar. The Commerce Department reported on Monday that core durable goods orders rose 0.9% month-over-month in June, beating the 0.8% economists had forecast, and the May figure was revised up to 1.9%. Core capital goods shipments surged 1.9%, the largest increase since December 2021. Economists expect business equipment spending to post double-digit growth for the second consecutive quarter. These figures indicate that the AI investment boom is helping to offset the drag on the economy from the U.S.-Iran conflict and tariff measures. The strong economic data reinforced market views on the resilience of the U.S. economy and provided a rationale for the Fed to maintain high interest rates.

BMO Capital Markets Senior Economist Tiaga Murthy noted that the AI-driven surge in equipment spending is a double-edged sword for the Fed. On one hand, it supports economic activity and productivity, but on the other, the sustained boom in AI-related investment could maintain inflationary pressures.

The Fed Meeting on the Horizon

The most significant source of uncertainty for the gold market is undoubtedly the upcoming Federal Reserve meeting, scheduled for July 28-29. This meeting has been dubbed by the market as "the hardest to predict in years." According to the CME Group's FedWatch tool, investors see a 37.9% probability of a 25-basis-point rate hike at this meeting, while the probability of holding rates steady stands at 62.1%. Market expectations for a rate hike in September are even stronger, with the implied probability rising to around 80%.

This divergence itself highlights the complexity of the situation. Just a few weeks ago, when the June CPI posted its largest single-month drop since April 2020, market bets on a July rate hike fell to around 10%. However, within a few short weeks, the triple shocks of the U.S.-Iran conflict, Trump's tariffs, and the AI investment boom completely reversed that narrative. Divisions within the Fed are also widening rapidly. Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack have both called for a rate hike, and both have voting rights at this meeting. Citigroup economists expect that if dissenting votes exceed two, it will be interpreted by the market as a stronger "hawkish" signal. But the "dovish" camp also exists, with New York Fed President John Williams and others leaning towards waiting until September to decide.

This policy uncertainty is causing rare two-way positioning in the financial system. The CEO of Derivative Path revealed that among his firm's clients, roughly one-third are preparing for a further rate hike, while the remaining clients are hedging against the risk of a rate cut. For gold, the direction of the Fed's decision is crucial. If the Fed holds rates steady, the precious metals market could see a rebound rally. However, if the Fed unexpectedly hikes rates or signals a more hawkish stance, gold prices could face renewed downward pressure.

The $4,000 Defense Line: Gold's Bull-Bear Battle

From a technical perspective, gold has fallen over 27% from its all-time high of $5,596 in February 2026. The price has repeatedly breached the $4,000 psychological level in July but has been quickly recovered each time. The $4,000 area has formed a significant psychological and technical support zone. UBS's global team remains bullish on gold's medium-term outlook, forecasting price targets of $4,675 per ounce for 2026 and $4,800 per ounce for 2027. Goldman Sachs has a short-term gold price forecast of $4,900 per ounce. The World Gold Council's latest report suggests that gold will continue to act as a barometer for the global macroeconomy, with prices likely to fluctuate around $4,100 per ounce this year.

However, some institutions hold a more cautious view. In a research report from early July, JPMorgan forecasted an average gold price of $4,400 per ounce for the second half of the year, with a potential downside to $3,500 per ounce if the Fed raises rates. Fu Yifu, a special researcher at Sushang Bank, pointed out that the recent international gold price has been stuck in a tug-of-war around $4,100 per ounce, with the core suppressing factor being the continuous disappointment of Fed rate cut expectations and the rising expectations for rate hikes. Gold ETF fund flows also reflect market hesitation. After a period of sustained net outflows, the outflow trend from the SPDR Gold ETF has slowed noticeably in July, with net inflows even recorded in some weeks. This suggests that bottom-fishing capital has begun to gradually position around the $4,000 level. However, total gold ETF holdings remain at cyclical lows. While market pessimism has marginally eased, a fundamental reversal has not yet occurred. This implies that the gold rebound is more driven by short-covering and bargain hunting rather than the accumulation of trend-following bullish strength.

Fork in the Road: Gold's Outlook Amidst Multiple Variables

Looking ahead, the gold market faces the intertwined influence of multiple variables. On the geopolitical front, the U.S.-Iran situation is far from settled. Trump made it clear on Monday that if a new ceasefire agreement is not reached, the U.S. will resume military strikes against Iran. He stated, "Time is running out. Either we get it done quickly, or we wash our hands of it." Meanwhile, tensions in the Red Sea region continue to escalate. Saudi Arabia announced it had destroyed a drone originating from Iraq, and Yemen's Houthi group claimed to have attacked Saudi oil infrastructure. The Middle East conflict appears to be spreading across multiple fronts. Iran also intercepted six vessels attempting to cross the Strait of Hormuz early Monday morning. These signs suggest that the current ceasefire might be a temporary respite rather than lasting peace. Zhengxin Futures expects the U.S.-Iran situation to be a tug-of-war, first easing and then intensifying within the week, with precious metals likely to maintain a bottom consolidation.

On the economic data front, investors are awaiting the release of the U.S. June personal consumption expenditures data on Thursday, the Fed's preferred inflation gauge. If the inflation data comes in hot, expectations for a September rate hike could intensify further, making $4,000 a clear downside target again. If price pressures show signs of cooling, gold could get a breather. Over the medium to long term, gold's structural support remains intact. Continued gold purchases by global central banks provide long-term support. The People's Bank of China has increased its gold reserves for the 20th consecutive month. Central banks net purchased 244 tonnes of gold in the first quarter of 2026, the strongest quarterly performance in over a year. Geopolitical uncertainty and global debt pressures further enhance gold's strategic allocation value. As James Stanley, Senior Market Strategist at Forex, noted, even if the Fed starts raising rates this week, "we won't see tight budgets or balanced budgets anytime soon in the long run, so the bullish case for gold remains even in this temporary counter-trend environment."

Conclusion

The current gold market is at a delicate moment, pulled in multiple directions by various forces. The geopolitical respite provides short-term support, but a strong dollar and Fed uncertainty create upward resistance. The oil price plunge is a double-edged sword—it eases inflation concerns and lowers rate hike expectations, but it also diminishes gold's appeal as an inflation hedge. The $4,000 level is a fiercely contested battleground for gold bulls and bears. To the upside, $4,200 is a significant resistance level; to the downside, $3,950 is a key defense line from the previous swing low. Until the Fed's policy path becomes clearer, gold prices are likely to remain in a range-bound pattern with "a ceiling above and a floor below."

As of 07:44 Beijing time, spot gold is trading at $4,072.24 per ounce.