Where to start
This week, after the release of U.S. July economic forward-looking indicators showed cooling in areas such as employment, expectations for a Federal Reserve interest rate hike have diminished. This, combined with a de-escalation of tensions in the Middle East, has reduced the bearish factors for precious metals. Despite significant uncertainty surrounding Friday's non-farm payroll data, improved capital sentiment has driven prices higher, resulting in a volatile but strengthening trend. International gold prices rose approximately 6% over the week, hitting a one-month high. Silver prices broke through the $63 mark on Friday, posting a weekly gain of over 9%, while platinum and palladium prices also saw notable increases.
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The bearish factors from the macro and geopolitical landscape are gradually being priced in, and improved capital sentiment is driving the recovery of precious metal prices. Since the Federal Reserve's decision to hold rates steady last week, with inflation peaking alongside falling oil prices and the U.S. still facing significant fiscal deficit pressure, market expectations for a rate hike this year have continued to loosen. The recent cooling of the U.S. job market has reignited speculation about rate cuts, causing U.S. bond yields to fall from their highs. Additionally, last weekend, President Trump announced the cancellation of a strike on Iran and hinted at restarting negotiations. The constraints of military production capacity make it difficult to sustain pressure on Iran, while Iran, though taking a relatively tough stance, is simultaneously advancing the opening and tolling measures for the Strait of Hormuz. This has raised questions about U.S. influence in the Middle East, putting pressure on the U.S. dollar. Consequently, precious metals have moved away from their yearly lows and are steadily rebounding.
Asian, particularly Chinese, gold investment demand remains resilient, providing support for prices. According to the latest data from the China Gold Association, gold consumption in China for the first half of 2026 reached 511.412 tonnes, a year-on-year increase of 1.23%. Among this, gold jewelry consumption was 132.133 tonnes (down 33.88% year-on-year), gold bars and coins were 339.336 tonnes (up 28.42% year-on-year), and industrial and other uses totalled 39.943 tonnes (down 2.90% year-on-year). Although domestic demand for gold jewellery declined in the first half of the year, it was offset by strong investment demand. Holdings in several ETF funds rose counter-cyclically during the gold price correction, and the People's Bank of China's continued increase in gold reserves for 19 consecutive months both reflect the growing influence of the Asian region, especially China, in the gold market, and signal a long-term bullish outlook for gold.
Looking ahead, with valuations in the global equity market's tech sector being revised downwards, some funds are expected to reallocate to gold. Technically, after several months of adjustment, gold has rebounded from its bottom, recaptured its 50-day moving average, and broken through the previous resistance from mid-June. This has triggered some short-covering by algorithmic trading. This resistance level may now turn into support. However, after the rapid price surge, current momentum indicators suggest the price is approaching overbought territory. If there is no new inflow of capital, concentrated profit-taking could occur once the bullish sentiment is absorbed.
Looking at the outlook, drawing from the experience of the 2025 precious metals bull market, the formation of an upward trend requires the cooperation of Fed rate cut expectations. Sustained capital inflows typically occur in a weak U.S. dollar environment. However, macroeconomic uncertainties persist. As the Fed reduces its forward guidance, the uncertainty of economic data is increasing, leading to more volatile and two-way market movements. Friday's U.S. non-farm payroll data will determine the short-term market direction. The current expectation is for around 80,000 new jobs, with the unemployment rate holding steady at 4.2%. If the result significantly deviates from expectations, sharp price swings in either direction are possible, posing greater risk for derivatives trading, requiring strict position management and stop-loss/take-profit orders. The current volatility of precious metal prices has generally fallen to low levels for the year. Considering the unresolved short-term price direction, one could consider constructing a strangle position with out-of-the-money options to wait for the direction to emerge after the release of U.S. inflation data and the clarification of Fed monetary policy expectations.
Risk factors
A fresh escalation of the Middle East conflict could lead to an energy supply disruption and a surge in inflation. The U.S. economy could continue to overheat, leading to a comprehensive tightening of Fed policy.