GOLD eyes 4200 USD 🟡

Gold (+2.9%) and silver (+4.45%) are gaining for the third consecutive session despite a pause in the dollar's decline. De-escalation of the conflict in the Middle East alongside a full "risk-on" environment in the stock market are boosting speculative demand, while debt concerns in key economies provide classic arguments for purchasing bullion.

Today's precious metals futures quotes. Source: xStation5

Technical Analysis: GOLD (D1)

Gold futures broke out bullishly today above the 10- and 30-day exponential moving averages (EMA10 in yellow; EMA30 in light purple), testing resistance at the upper bound of the recent consolidation zone at the 23.6% Fibonacci retracement level of the latest downward wave (April–July). However, the contract continues to trade below the psychological level of $4,200 per ounce (tested once in early July). A close above this threshold would signal realistic chances of transitioning from a sideways trend to an uptrend, with a breakout above the EMA100 (dark purple) becoming viable if optimism persists across other risk asset classes and the dollar correction holds (inverted USDIDX in blue).

Source: xStation5

Why are precious metals rebounding?

The attempt to establish an uptrend in gold and silver stems from a combination of a weaker dollar, declining geopolitical risk, and a surge in institutional and speculative demand (reflected in last week's volume rebound in Chart 1).

Chart 1. Trading volume on Gold Futures contracts

Source: CME Group

Key arguments for the bulls:

• Easing geopolitical tensions & shifted Fed rate outlook: Hopes for a US-Iran agreement regarding the Strait of Hormuz are easing inflation fears and lowering market expectations for Fed rate hikes to just one by year-end. Lower bond yields and a reduced inclination toward short-term monetary tightening directly support non-yielding precious metals.

• Institutional capital inflows & Asian demand: Rebounding sentiment across Asian markets is providing strong backing for precious metals. Chinese gold-backed ETFs logged 14 consecutive days of capital inflows, snapping a long streak of outflows. A return to gold purchases by the Bank of Korea provided an additional positive impulse.

• Technical momentum & short covering: Current price levels triggered a wave of short covering following months of war-driven declines. In July, gold rebounded off a 10-month low and gained approximately 4% over the past three weeks, returning to the $4,165 per ounce area. A similar rebound played out in silver.

How strong is the jump in risk appetite?

Historical data in Chart 2 highlights a significant negative correlation between major precious metals and the US dollar (gold and silver in the bottom row; Bitcoin and S&P 500 at the top). The current week performance (blue dots) points to clearly accelerating optimism. The dollar's decline has paused (USDIDX is pegged near Friday's close), while gold and silver are breaking above their trendline.

Chart 2. Comparison of weekly returns of selected assets against the USD.

Source: XTB Research, Yahoo Finance data

The war in Iran and the accompanying capital flows into the dollar temporarily overshadowed bullion's role as a classic safe haven. Now, gold and silver are attempting to launch a new uptrend on the back of rising risk appetite (also visible in Bitcoin and equities).

However, sentiment improvement and speculative demand are not the sole fundamentals driving precious metals higher. Last week, US 30-year Treasury yields broke out to their highest levels since 2007 as investors sold off debt amid fears of lingering inflation and a slow Fed response. Similar concerns are being generated by the unprecedented US involvement in foreign exchange interventions supporting the Japanese yen (Japan holds approximately $1.14 trillion in US Treasuries).

Chart 3. 10-year bond yields in Japan, Germany, and the US.

Source: XTB Research, Bloomberg and Macrobond data