Spot gold recently climbed to a three-month high of $4,696.18 per ounce, buoyed by the US Treasury's expanded long-dated buybacks, a weakening dollar index, uncontrolled fiscal deficit expansion, and the broader "sovereign currency debasement trade." However, the precious metal has been under sustained pressure since Fed Chair Warsh's hawkish remarks at the Jackson Hole symposium last Friday, with renewed US-Iran hostilities further dampening sentiment.

The prevailing pricing chain—Warsh's hawkish stance, rising oil prices, heightened inflation expectations, increased rate-hike odds, and climbing real yields—has temporarily overshadowed gold's safe-haven appeal tied to geopolitical tensions, dollar credit anxiety, and fiscal deficit concerns. As surging energy costs reinforce rate-hike bets and lift global risk-free yields, the non-yielding metal is caught between rising opportunity costs and technical selling pressure. While Warsh has revived rate-hike speculation, the structural drivers of long-term currency debasement—fiscal deficits, erosion of dollar purchasing power, and central bank buying—remain firmly intact. Wall Street continues to support a higher trajectory for gold structurally, but the path forward appears to be transitioning from a one-way bull run to a wide trading range dictated by policy, oil prices, and long-dated Treasury yields.

At Jackson Hole, Warsh underscored that the US PCE price index has risen 3.7% over the past twelve months and 4.1% over the past six months, with inflation still well above the 2% target. He emphasized that the Fed's "primary focus should be on prices," and if core inflation does not decelerate fast enough, policymakers still "have work to do." These remarks rapidly lifted September rate-hike probabilities from 35.4% to 55.7%, and subsequently to 66%. On the day of Warsh's speech, spot gold tumbled 3.19%, spot silver fell 4.3%, and US two-year and ten-year Treasury yields climbed to 4.36% and 4.728%, respectively. The S&P 500 slipped 0.25%, while the Nasdaq Composite lost 0.52%. Crude initially eased, but after the US-Iran conflict reignited, Brent and US crude surged 4.6% and 5.2% on Tuesday to close at $94.65 and $90.22, respectively, sending global bond yields even higher and dragging the S&P 500 and Nasdaq down another 0.71% and 1.03%. Spot gold settled at $4,342.20 on Tuesday, remaining below its 200-day moving average.

Rising Yields, Oil Weigh on Gold, Wiping Out Most of the Year's Gains

Gold futures fell for a third consecutive session on Tuesday as the renewed escalation between the US and Iran drove global long-dated yields sharply higher, while firming market inflation expectations increased the likelihood of higher interest rates in the coming months.

LSEG data showed the US ten-year Treasury yield recently jumped to 4.798% and the two-year to 4.369%, both at their highest levels since January 2025, reflecting growing market bets on a September Fed rate hike. The US 30-year yield has spent its longest stretch above 5% since 2006. Overseas, Japan's ten-year yield broke above 3%, hitting a 30-year high; Germany's ten-year yield climbed to 3.364%, a 15-year peak; and the UK's ten-year yield surged to 5.255%, the highest since 2008, with the 30-year reaching levels not seen since 1998.

The oil price spike has fueled concerns about inflation and its policy implications, particularly after Warsh's recent warnings. CME FedWatch data shows rate futures traders now price a 66% probability of a hike this month.

Jim Wyckoff, senior analyst at American Gold Exchange, noted, "We are seeing some technical selling pressure... global bond yields are at multi-year highs. So all of these factors are suppressing the gold market." He added that gold has broken below its 200-day moving average, "which is a significant technical signal." He believes the path of least resistance for gold in the short term may be sideways to slightly weaker, and the same applies to silver.

COMEX September-delivery gold futures plunged 1.9% on Tuesday to settle at $4,348.00 per ounce, the lowest close since August 7, while COMEX September silver futures dropped 2.4% to $64.618 per ounce, the weakest settlement since August 18. For the year to date, spot gold is now up a mere 0.5%, while silver has declined 7.8%.

Missiles Over Jordan, Tankers in the Strait: US-Iran Conflict Reshapes Global Risk Premium

The US-Iran confrontation has escalated from the weekend's "US bombing of Larak Island and Iran's attack on a US base in Jordan" to a second round of direct exchanges within three days. On Tuesday, US forces struck Iranian Revolutionary Guard air defenses, radar, naval operations, mine-laying, and communication facilities, with Iranian media reporting explosions near Ahvaz, Jiroft airport, Chabahar, Bandar Abbas, Assaluyeh energy hub, and Qeshm Island. Iran retaliated with ballistic missiles and drones against US facilities in Jordan and claimed strikes on US targets in Bahrain. Jordan confirmed 13 ballistic missiles entered its airspace, intercepting ten with three landing in remote areas; the US reported no casualties, leaving Iran's claims of "heavy US losses" unverified.

President Trump's rhetoric of a "final strike in preparation" and Iran's response to "tighten the Strait of Hormuz" indicates both sides are vying for escalation dominance rather than approaching a ceasefire. The Strait of Hormuz, vital for global energy transport, has become a real operational theater: two supertankers carrying roughly two million barrels of Saudi crude each were hit by unidentified projectiles within minutes near Oman. The US clearing of main shipping lane mines does not mean commercial traffic has normalized, as attack risks, escort capabilities, war insurance, and crew willingness remain binding constraints. Meanwhile, the US naval blockade has prevented Iran from exporting significant crude through the strait for about seven weeks. While there is no evidence the Bab el-Mandeb Strait is fully closed, the Houthis have announced a blockade on Saudi shipping and attacked a cargo vessel in August, indicating it could be a "second maritime battlefield" activated by Iran. A simultaneous disruption of both straits would limit exports of Gulf crude, LNG, fertilizers, and petrochemicals through Hormuz, while cutting the Red Sea-Suez route and forcing diversions around the Cape of Good Hope. This "dual-gate shock" would non-linearly lift oil prices, diesel cracks, freight, and insurance costs, intensifying global reflation and upward pressure on bond yields.

Treasury Secretary Bessent's proposed "two-year detour" is a long-term de-risking project that cannot replace the current limited pipeline capacity, let alone address LNG and non-energy commodity transport issues.

Can the 'Hawkish' Fed Contain Gold's Long-Term Bull Market? Wall Street Eyes $5,000

Recent forecasts from major institutions highlight a mixed but ultimately bullish outlook. Citi has raised its zero-to-three-month gold target from $4,500 to $4,800 while holding a $5,000 target for six to twelve months out. Goldman Sachs projects $4,900 by the end of 2026 and sees central banks buying an average of 50 tons of gold monthly in 2026, well above the pre-2022 average of 17 tons. Deutsche Bank is more cautious, seeing Q3 and Q4 averages of $4,300 and $4,800, but warns prices could test $3,800 if the Fed embarks on consecutive hikes. Morgan Stanley believes its Q4 target of $4,450 has already been achieved and sees a path to surpass $5,000 by 2027.

The real consensus among Wall Street analysts is not that gold will rise in a straight line, but that high real rates and a hawkish Fed will produce sharp pullbacks. However, the four core pillars of the medium-to-long-term structural bull market remain: sustained and disorderly US fiscal deficit expansion, long-term dollar purchasing power erosion, central bank reserve diversification, and severely underweight gold allocations in private portfolios.

Bridgewater founder Ray Dalio has again warned about US fiscal conditions. He suggests that Treasury Secretary Bessent's announcement to expand long-dated buybacks, combined with surging long-term Treasury yields and Japan's reduced exposure to US bonds, may signal the US fiscal situation is nearing a critical inflection point. If the debt issue is not addressed promptly, the US could face a more severe debt crisis in coming years, and he advises investors to increase their gold holdings.

Bank of America's proprietary "Bull & Bear Indicator" has risen to 9.5, entering "sell" territory. The strategy team led by Michael Hartnett, dubbed "Wall Street's most accurate strategist," advocates hedging dollar credit dilution with gold, going long on commodities and natural resources needed for AI buildout, shorting AI-related bonds, and remaining wary of highly leveraged hyperscalers, private credit, and cyclical financial assets.

Gold's "niche market" paradox is the most explosive element in this long-term bullish thesis. Although the total value of above-ground gold exceeds $30 trillion with daily trading volume surpassing $300 billion, a significant portion is held as central bank reserves, jewelry, and long-term positions. Much of the London market's massive turnover comes from repeated transactions between banks, market makers, and algorithmic traders. The actual free float available to absorb new long-term capital is far smaller than the notional market cap suggests.

Goldman Sachs data shows gold ETFs accounted for just 0.17% of US private financial portfolios in December last year. The bank's model suggests that for every 0.01 percentage point (1 basis point) increase in institutional or retail gold allocation under any rationale, gold prices would rise roughly 1.4%.

JPMorgan's May 2025 scenario analysis shows that foreign investors hold approximately $57 trillion in US assets. If 0.5% of that—around $273.6 billion—were redirected into gold over four years, it would amount to roughly $70 billion annually, potentially driving an ~18% annualized appreciation and pushing gold toward $6,000 by early 2029. These projections underscore the high sensitivity of capital flows.

Demand fundamentals provide concrete support for this re-rating, not just theoretical assumptions. Global gold ETFs saw net inflows of approximately $3 billion in July, adding 23 tons, with total holdings recovering to 4,068 tons and assets under management reaching $530 billion. Central bank net buying also rebounded sharply from 57 tons in Q1 2026 to 289 tons in Q2, demonstrating the official sector's strong counter-cyclical absorption capacity during price dips.