On August 21st, gold and silver continued their upward trajectory, with spot gold holding above $4,500 per ounce during the session and briefly touching $4,560 per ounce. The metal is on track for a third consecutive weekly gain, while gold-related equities have also been strengthening. Since the rebound began in late June, international gold prices have delivered a notably strong performance. What are the primary drivers behind this rally, and how sustainable is the current momentum? Chen Ziyang, fund manager of the Great Wall Resources Select Fund, offered his professional insights on these questions.
Chen attributed the recent surge in gold prices to two key factors. Firstly, the most direct catalyst was the surprising weakness in U.S. employment data. The earlier decline in gold was largely due to the market pricing in expectations of three Federal Reserve rate hikes within the year. However, July's non-farm payrolls unexpectedly contracted by 23,000 jobs, significantly missing market forecasts, while CPI also showed signs of cooling. This has led to a reduction in expectations for Fed rate hikes, thereby driving gold prices higher. Secondly, signals of easing tensions in the Middle East have increased downward pressure on oil prices. The market had previously been concerned that regional conflicts would push up crude prices, forcing the Fed to maintain its tightening stance. Recent progress on navigation issues in the Strait of Hormuz has alleviated energy inflation worries, opening up room for a valuation recovery in gold.
Regarding the sustainability of this rally, Chen believes that based on current data, the U.S. economy is showing clear signs of cooling, making it highly probable that gold prices will stabilize after the rebound. However, whether prices can move higher will depend on the evolution of subsequent U.S. economic data.
Taking a long-term perspective, Chen pointed out that the lack of an effective solution to the U.S. debt problem keeps dollar creditworthiness a central concern for the market. In this context, gold serves as a hedge against dollar credit risk and possesses significant long-term investment value. Central bank gold purchases also provide solid structural support—global central banks recorded net purchases of 289 tonnes in the second quarter of 2026, with the People's Bank of China having increased its gold reserves for 21 consecutive months.
"Objectively speaking, we should only define the current trend as a rebound," Chen explained. Investment in the AI sector remains robust, providing considerable support to the U.S. economy, making it difficult to determine the nation's economic trajectory at this stage. On the risk front, attention should be paid to the potential for a sharp rebound in oil prices. If crude prices surge again due to geopolitical conflicts or OPEC+ production cuts, it could fuel imported inflation, forcing the Fed to maintain high interest rates or even resume hikes, which would in turn cap the upside for gold prices.
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