Author: Aaron, ChainThink

As of early Asian trading on July 17, spot gold traded near $3,986–$3,997 per ounce, rebounding slightly by approximately 0.29% intraday. On the previous trading day (July 16), COMEX August gold futures closed down $59.70, settling at $3,992.10 per ounce. Gold remains narrowly holding near the psychologically significant $4,000 level that markets are closely monitoring, though it has retraced about 29% from its all-time high of $5,602 set on January 29.

Gold has seen a cumulative pullback of around 7% over the past month but remains roughly 20% higher year-on-year. The Shanghai gold market in July has exhibited a pattern of "initial gap-up rally followed by sustained decline," placing gold at a critical juncture for directional choice.

Recent Market Event Recap

Non-Farm Payroll Surge Triggers Early Rally

On July 2, the U.S. Bureau of Labor Statistics released the June non-farm payroll report, showing only 57,000 new jobs—far below the expected 110,000—with revisions to April and May data collectively reducing total employment by 74,000. Following the release, the U.S. Dollar Index plunged nearly 40 points in minutes, while the 2-year U.S. Treasury yield dropped sharply from ~4.191% to 4.108%. According to CME FedWatch, the probability of the Federal Reserve holding rates steady in July jumped from 68.5% to 81.8%. Spot gold surged over 2%, breaking above the $4,100 per ounce threshold.

Warsh's "Dovish" Remarks Misinterpreted

On July 1, Federal Reserve Chairman Kevin Warsh delivered his first public address since taking office at the European Central Bank’s Global Central Bank Forum, conveying two key messages: rejection of forward guidance—stating he would “chart a new policy path” without disclosing any signals for the upcoming July FOMC meeting—and acknowledgment of declining inflation risks, explicitly stating, “inflation expectations have declined, and inflation risk has diminished.” Markets selectively amplified the “declining inflation risk” statement, driving gold prices upward persistently.

However, on July 16, Warsh’s testimony before Congress marked a sharp pivot toward hawkishness, reiterating a “zero tolerance” stance on elevated inflation. This shift triggered a surge in bets on a September rate hike, now priced at nearly 59%. This abrupt swing between dovish and hawkish signals became the core driver behind gold’s downward pressure in mid-July.

Escalation in Middle East Tensions & Energy Shock

This week, U.S.-Iran tensions escalated further as U.S. forces conducted airstrikes on Iranian military installations. Reuters reported on July 16 that Iran had instructed Houthi fighters in Yemen to prepare for blocking Red Sea oil shipping lanes. This development heightened market concerns over Middle East energy supply stability, keeping international crude oil prices near one-month highs.

For gold, this represents a paradoxical mix: geopolitical risk premium should normally support safe-haven demand, yet the same conflict is driving up oil prices and inflation expectations, thereby reinforcing the Federal Reserve’s tightening posture and weakening gold’s appeal as a zero-yield asset. TD Securities’ Global Commodities Strategy Head noted that rising oil prices have led markets to anticipate further increases in U.S. Treasury yields—the primary headwind currently pressuring gold.

Inflation Data Cooldown Fails to Boost Gold

The latest CPI data showed a 0.4% month-over-month decline in June, with year-over-year growth dropping from 4.2% to 3.5%; core CPI YoY fell from 2.9% to 2.6%, with housing costs posting their smallest increase since January 2021. PPI also came in weak, declining 0.3% month-over-month.

Traditionally, cooling inflation and reduced expectations for rate hikes should be bullish for gold. Yet, gold rose briefly after the data release before reversing gains. The core reason lies in the fact that improved inflation metrics were already partially priced into markets, while the rebound in energy prices is reshaping inflation trajectories over the coming months. Market pricing still retains a high probability of rate hikes by year-end—gold is facing a duration mismatch between current improvement and future inflation risk.

Key Variables to Watch

Fed Policy Path — Greatest Uncertainty

Market divergence on the Federal Reserve’s policy trajectory has reached its widest point in nearly half a century. The upcoming July FOMC meeting (July 28–29) is widely expected to maintain rates unchanged, yet three FOMC members have already signaled opposition, advocating for a rate hike. Market pricing on September hikes oscillates around 50%.

Core assessment: Based on a gold price-implied interest rate model, the current $4,000/oz gold price fully reflects pricing for 3–4 rate hikes—exceeding what is actually embedded in interest rate derivatives. This implies that any reversal in rate hike expectations will trigger strong corrective upside momentum for gold.

Central Bank Gold Buying — Structural Support

The People’s Bank of China has been increasing gold reserves for 20 consecutive months, adding 480,000 ounces (~14.9 tons) in June. According to World Gold Council (WGC) research, 89% of surveyed central banks expect global gold reserves to rise within the next year. The sustained nature of central bank purchases provides solid structural support for gold.

Pricing Influence of Asian Investors

The WGC notes that most price movements in gold occur during Asian and U.S. trading sessions, reflecting the growing importance of Asian investors in global gold price discovery. Asian session trading consistently provides a clear floor for gold prices, while U.S. session activity remains relatively weak—a structural feature evident throughout July’s volatile range-bound market.

Professional Valuation Model Analysis

World Gold Council (WGC) Valuation Framework

The WGC’s short-term gold price attribution model (GRAM) indicates that the dominant drivers of gold performance in the first half of the year were rising geopolitical risks (particularly U.S.-Iran tensions), alongside shifts in investor positioning and profit-taking dynamics.

The Council presents three scenarios for the second half:

WGC Americas CEO An Kai emphasized that gold is a “truly global asset,” underpinned by structural demand from central banks, institutional investors, and consumers—forming the bedrock of gold’s resilience.

WisdomTree Four-Factor Valuation Model

Nitish Shah, Head of Commodities & Macro Research at WisdomTree, developed a gold valuation model incorporating four core variables: U.S. Treasury yields, the U.S. dollar, inflation, and speculative positioning. The model shows that gold experienced an unprecedented, significant premium relative to its fundamental fair value in January, which has largely been erased following nearly 30% correction in the first half of the year.

Shah argues this correction was a healthy normalization—early-year speculative overheating has been digested. He believes market pricing on Fed rate hikes is overly aggressive; balance sheet reduction alone can achieve tightening effects, making repeated hikes unnecessary. Based on this, WisdomTree maintains a long-term bullish outlook on gold, forecasting a 25% rise by Q1 2027—“a breakout above $5,000/oz is entirely feasible.”

China International Capital Corporation (CICC) Implied Rate Model

CICC’s gold price-implied interest rate model indicates that the current $4,000/oz gold price already fully prices in 3–4 rate hikes—higher than what is reflected in interest rate derivatives. Under the “de facto dovish, nominally hawkish” Fed framework, gold market pricing of rate hikes is likely to be revised downward, creating potential for short-term capital repurchase.

Additionally, CICC’s “interest rate-positioning” VAR model shows SPDR Gold ETF holdings are slightly below the level justified by interest rate guidance, indicating that overexposure has been adequately adjusted.

DSP Framework: Gold Trading Below Fair Value

Based on the DSP valuation framework, as of July 1, gold at $3,994/oz was trading 10.7% below the model’s theoretical price—indicating that from a pure valuation standpoint, gold is currently undervalued.

K-Line Technical Analysis

Daily Chart: Bearish Body Confirmed, But Watch for False Break Reversals

On July 16, gold closed with a bearish body, suggesting continued downside momentum under trend inertia. Gold remains below the psychological $4,000 level and continues to face resistance from the 50-day exponential moving average (EMA50)—now acting as a dynamic resistance level, reinforcing the short-term downtrend.

However, extreme caution is warranted: Friday (July 17) marks the weekly close. Historical patterns show Fridays are high-frequency washout days—traders often exploit weekly chart formations to create false breakouts, luring participants into chasing losses. In weak phases, brief selloffs are frequently followed by rapid rebounds.

From a broader structure perspective, gold’s decline from the January high of $5,602 has completed a clear three-wave bearish pattern (~29% drop to ~$4,000). The current consolidation near $4,000 may be forming a larger-scale bottom base. If price stabilizes effectively within the $3,900–$4,000 range and confirms a volume-supported breakout, the likelihood of a reversal significantly increases.

Indicator signals show both oversold recovery potential and ongoing downward pressure: RSI(14) stands at ~37, approaching the oversold zone (30), indicating waning short-term bearish momentum.

Previously deep in oversold territory, stochastic indicators have now generated a bullish crossover signal, offering limited support and driving a short-term recovery move.

Yet, the rebound strength remains weak—overall technical structure remains bearish in the short term. Focus remains on whether price can break above $4,200.

Summary

Gold is currently in a consolidation phase characterized by “support from valuation, pressure from policy.” The tug-of-war around the $4,000 level essentially reflects market re-pricing of the Federal Reserve’s policy path.

Multiple independent valuation models indicate gold is currently fairly valued or even undervalued; rate hike expectations are fully or excessively priced, and any revision is more likely to be positive. Central bank gold buying and structural demand from Asian investors provide continuous support.

Short-term, gold is most likely to trade within a $3,900–$4,050 range. Mid-term, as the July FOMC meeting (July 28–29) concludes and the rate hike path becomes clearer, gold may see a structural recovery in late Q3 to Q4. However, risks remain—persistent energy price rallies could continue to elevate inflation expectations, reinforce tightening logic, and sustain the technical bearish structure, with EMA50 continuing to act as dynamic resistance.