By Linh Tran, Market Analyst at XS.com
Gold is entering a testing phase after an extended rally, as the macro picture delivers mixed signals and global risk appetite shifts quickly with news flow. In the short term, the key factor remains the interplay between real yields – the U.S. dollar – and policy expectations.
In July, U.S. data showed strong input inflation (PPI +0.9% m/m), while core CPI moderated only slightly (+0.3% m/m). At the same time, consumption showed signs of slowing (retail sales +0.5%; University of Michigan consumer sentiment falling to multi-month lows). This backdrop reinforces a rate-cut scenario—enough for the Fed to consider easing by year-end, but not enough to create immediate pressure to act. With policy still in limbo, elevated real yields and a relatively firm U.S. dollar are both limiting gold’s upside momentum in the near term.
On the macro front, geopolitical uncertainty—particularly the Russia–Ukraine conflict, which has yet to see a breakthrough even after the August 15 Trump–Putin summit—continues to underpin demand for safe-haven assets such as gold. However, conciliatory signals about potential future dialogue have reduced the urgency of defensive positioning. As a result, gold retains its defensive value, but flows are leaning toward waiting for clearer signals rather than chasing risk.
From a supply–demand perspective, the medium-term support for gold comes from central banks continuing to diversify reserves, especially in emerging markets. While net purchases may fluctuate monthly, the multi-year trend still supports gold’s role in national reserves. On the other hand, gold ETFs have recorded unstable flows, with demand largely dictated by the interest rate narrative; once real yields decline meaningfully, ETFs could quickly reverse and amplify gold’s rally, and vice versa.
Taken together, gold is likely to consolidate in the short term, remaining highly sensitive to Fed communication and the trajectory of real yields. At present, all eyes are on the upcoming Jackson Hole Symposium. A “conditionally dovish” message, coupled with signs of slowing growth, could bring gold back into an uptrend, particularly if 10-year TIPS yields retreat and the DXY weakens.
Over the medium term, opportunities for gold remain as the tightening cycle approaches its final stage, while geopolitical risks persist. The key risk lies in a scenario of stubborn inflation forcing the Fed to stay hawkish for longer, driving real yields higher, strengthening the dollar, and pushing flows out of precious metals in the near term.
In conclusion, gold is undergoing a healthy correction within a fundamentally favorable medium-term trend. Investors should remain cautious, awaiting upcoming data and policy signals to adjust their strategies accordingly.