【TMGM Financial Recap】High Oil Prices Trigger A Rate Hike Storm, Gold Plunges 4% To A Seven-Week Low, Aiming For 4000 In The Future!

Spot gold plunged 4% on Monday, hitting its lowest level since August 5. This is a storm triggered by oil prices, inflation expectations, Fed rate hike bets, a stronger dollar, and soaring US Treasury yields. Gold, as a traditional safe-haven asset, briefly lost its aura under multiple pressures, and market sentiment quickly shifted to caution. 

The trigger for this sharp drop in gold prices first came from the crude oil market. U.S. President Trump rejected Iran's proposed peace agreement, which was originally intended to resolve the conflict and reopen the Strait of Hormuz. After the news broke, oil prices surged intraday by more than $4 per barrel. Although Qatar's mediators later promised to hold talks with the U.S. and Iran respectively to narrow oil price increases, concerns about supply disruptions have not truly disappeared. The reason the oil price increase dealt a heavy blow to gold is that it directly ignited inflation concerns. 

If oil prices were the trigger, then the dollar and US Treasury yields are the two major burdens that break gold prices. The US dollar rose against major currencies on Monday, staying near a two-month high. A stronger dollar has made dollar-denominated gold more expensive for overseas buyers, directly weakening global demand for gold. Meanwhile, US Treasury yields continued to rise, further increasing the opportunity cost of holding non-yielding gold.

The deeper background to the gold plunge is the sharp shift in market expectations for the Federal Reserve's monetary policy. Earlier this month, the Fed raised its benchmark rate by 25 basis points and hinted at possible further rate hikes in the coming months. Several policymakers echoed the Fed's hawkish stance, warning that inflation risks remain elevated and that rates may need to rise further. Interest rate market data is even more impressive. The CME FedWatch tool shows traders believe there is about a 94% chance of a Fed rate hike in December. In bond trading, expectations for a 25 basis point rate hike in October rose from 64% last Friday to about 70%, with the probability reaching 73% intraday. Investors have almost fully priced in the expectation of four rate hikes of 25 basis points each over the next 12 months. This means the market is pricing in a tightening cycle far more aggressive than before. 

The market is currently focusing on job vacancies, the ADP employment report, the Personal Consumption Expenditures Price Index, and the nonfarm payroll report, all of which will be released this week. If these figures align with expectations of further monetary tightening, gold will remain under pressure in the short term. 

Market Insight:

Looking ahead, gold's short-term performance will be highly dependent on a series of upcoming economic data releases this week. Wednesday's Personal Consumption Expenditures Price Index and Friday's nonfarm payroll report are especially crucial, both expected to align with expectations of further monetary tightening. If the data is strong, bets on Fed rate hikes in October or even December will intensify, the dollar and Treasury yields may continue to rise, and gold may test lower levels. Conversely, if data shows signs of cooling or if Middle East negotiations make substantial progress leading to a drop in oil prices, gold may have a breathing room.