On Thursday, the global gold market staged a robust rebound, with spot gold closing up 1.8% and recovering above the 100-day moving average of $4,320 to settle at $4,341.62 per ounce. During the session, prices hit a one-week high of $4,381.14, while U.S. December gold futures also gained 0.3% to close at $4,399.70.

This upward move was driven by a confluence of factors, including a softer U.S. dollar, a continued pullback in oil prices, and declining Treasury yields. Investors are simultaneously digesting the latest Federal Reserve rate hike while reassessing gold's role as a safe-haven and hedging asset. Although short-term volatility remains inevitable, medium- and long-term supportive factors are quietly building. Early Friday morning in Asia, spot gold traded in a narrow range around $4,445 per ounce.

Oil Price Easing and Dollar Softness Directly Spark the Gold Rebound

Gold and energy prices have long maintained a tight inverse relationship. David Meger, precious metals trading director at High Ridge Futures, noted that in an inflation-driven market environment, significant declines in energy prices often effectively alleviate some of the pressure on the gold market. This week, oil prices fell for a second consecutive session, hitting a one-week low, primarily due to waning concerns over supply disruptions. Reports indicate Saudi Arabia will supply additional crude cargoes via Oman, which has helped temper oil price expectations that had been elevated by tensions in the Middle East.

Meanwhile, the U.S. dollar index retreated from a seven-week high, dipping to around 100.02 during the session. A softer dollar directly reduces the cost of dollar-denominated gold for holders of other currencies, spurring buying interest. The benchmark 10-year U.S. Treasury yield also declined, ending Thursday at 4.943%, down 6.1 basis points, marking its largest single-day drop in over three weeks. Lower risk-free yields diminish the opportunity cost of holding gold, further underpinning prices. These combined factors enabled gold to quickly mount a counterattack after hitting a near six-week low the previous day. Market sentiment has shifted from caution to optimism, with visible signs of technical repair emerging in the short term.

Fed Rate Hike Aftermath Persists, with Rate-Inflation Dynamics Remaining the Core Battle

The Federal Reserve's rate hike decision on Wednesday, along with its subsequent communications, remains a key variable for gold prices. The hike was approved unanimously, with the Chair offering explicit support and hinting at further tightening in the coming months. This effectively acknowledges that current inflationary pressures are not yet under control, and policymakers remain vigilant about the risk of inflation worsening. According to the CME FedWatch tool, traders now price in roughly a 51% probability of another rate hike at the Fed's October meeting, up from around 44% the previous day.

Gold has historically served as a key hedge against inflation, but high interest rates enhance the appeal of yield-bearing assets, thereby pressuring non-yielding gold. In the near term, the market is still digesting the impact of this hawkish signal, and gold prices are likely to remain choppy. However, UBS offers a more forward-looking perspective in its report: widening fiscal deficits, rising debt burdens, an eventual weaker dollar, and expectations that the Fed will resume easing next year should support gold prices over the medium and long term. While short-term fluctuations may be unavoidable, directional support is taking shape.

Overseas central bank policies are also evolving in tandem. The Bank of England kept rates unchanged on Thursday but warned about inflation and hinted at potential future hikes, which weighed on the pound. Meanwhile, the Bank of Japan is expected to raise rates to a 31-year high on Friday and signal continued upward pressure on borrowing costs. The policy divergence among major global central banks adds further uncertainty to the dollar's trajectory, indirectly creating room for gold.

Geopolitical Tensions Remain a Key Concern

Tensions between Iran, the U.S., and Israel continue to escalate. Ali Larijani, a senior advisor to Iran's Supreme Leader, issued a stark warning that the Strait of Hormuz will never reopen unless Donald Trump and Benjamin Netanyahu step down. This strategic waterway connecting the Persian Gulf and the Gulf of Oman is a vital artery for global oil and gas transportation, with one-fifth of the world's oil and liquefied natural gas passing through it before the conflict. Trade volumes through the strait have dropped sharply in recent days, with preliminary maritime tracking data showing only three commercial vessels transiting on Wednesday.

Meanwhile, the conflict in Yemen continues to spread. Saudi Arabia and Houthi forces have launched cross-border attacks again, and the International Organization for Migration reports that the latest clashes have displaced over 100,000 people in Yemen. Iran claims to have attacked 10 vessels and has intensified navigation restrictions in the region. U.S. facilities in Jordan were also affected, with an Iranian strike on Muwaffaq Salti Air Base damaging several American aircraft.

Logically, such severe geopolitical tensions should provide strong safe-haven buying for gold. However, in reality, geopolitical conflicts indirectly pressure gold by driving up oil prices, which in turn reinforces inflation expectations and strengthens the Fed's tightening bias. This creates a tug-of-war between "safe-haven buying" and "interest rate pressure" on gold. Cheng Shi, chief economist at ICBC International, noted that the primary economic impact of military conflicts is concentrated in risk premium increases and their cross-market transmission, which directly boosts demand for assets like gold. But the complexity lies in the fact that geopolitical conflicts simultaneously raise inflation expectations through the oil price channel, thereby reinforcing the Fed's tightening expectations. This dynamic was particularly evident in early September, when gold traded weakly despite escalating geopolitical risks, weighed down by surging oil prices and stronger-than-expected U.S. inflation data. Only when oil prices retreated and supply concerns eased did gold finally gain a window to rebound.

The Overlooked Underlying Force: Central Bank Gold Purchases and Long-Term Structural Support

Beneath the short-term noise of Fed policy battles and geopolitical disruptions, a more enduring and decisive force is quietly reshaping gold's fundamental landscape: sustained central bank gold purchases. The People's Bank of China's data is particularly striking. As of the end of August 2026, China's central bank held gold reserves of 76.73 million troy ounces (approximately 2,386.57 tonnes), an increase of 650,000 ounces (about 20.22 tonnes) from the end of July, marking the largest monthly increase since October 2023. This marks the 22nd consecutive month of gold accumulation by the PBoC.

In terms of pace, since resuming purchases in November 2024, the central bank's accumulation has shown a pattern of "rapid initial growth, slower mid-phase, and recent acceleration." Since March, the monthly increases have steadily grown from 160,000 ounces in March to 650,000 ounces in August. China's gold buying is not an isolated case. The Bank of Korea recently announced plans to increase its official gold reserves, marking its first physical gold purchase since 2013. A June survey by the World Gold Council revealed that nearly 90% of central banks surveyed expect global central bank gold reserves to continue increasing over the next 12 months, with 45% indicating plans to add gold within the coming year—the highest proportion ever recorded in the survey. Analysts suggest that geopolitical risks may become more normalized, further boosting central banks' and markets' willingness to buy gold. The core motivations for central bank gold purchases lie in de-dollarization and optimizing reserve structures to hedge against dollar credit weakening and geopolitical risks. Continued central bank buying and the de-dollarization trend form the foundation for gold's medium- and long-term appreciation.

Summary

In summary, Thursday's strong gold rebound was the result of a convergence of dollar weakness, lower oil prices, falling yields, and geopolitical factors. In the short term, expectations of further Fed rate hikes and market sentiment swings could still trigger volatility, so close attention should be paid to the dollar index and Treasury yield movements. Over the medium and long term, fiscal expansion, debt pressures, a potentially weaker dollar, and ultimately a shift in monetary policy provide a more solid support base for gold prices. The gold market is emerging from its recent correction, and the rally signal has sounded. The next moves will depend on inflation data, central bank communications, and the further evolution of geopolitical conditions. On this trading day, investors should also watch U.S. August industrial production data and speeches from Fed officials.

As of 07:38 Beijing time, spot gold was trading at $4,344.08 per ounce.