Geopolitical tensions in the Middle East escalated over the weekend, putting pressure on spot gold prices in early Monday trading.

Looking back at last week, gold prices experienced heightened volatility both domestically and internationally, with weekly charts continuing to show a decline.

Spot gold recorded a weekly loss of 1.51%, while the main Shanghai gold futures contract fell by 1.48%.

On the geopolitical front, a new round of conflict has erupted between the US and Iran, with increased strikes from both sides raising the risk to navigation through the Strait of Hormuz.

The resulting rise in oil prices has lifted inflation expectations, contributing to short-term weakness and choppy trading in gold.

Macroeconomic Developments

In the US, the June ISM Services PMI dipped to 54.0 from 54.5, slightly below the market consensus of 54.2.

While the index remains above the 50-point threshold that separates expansion from contraction, indicating continued service sector growth, the pace of that expansion has slowed.

Notably, the employment index recorded its largest increase of 2024 and moved back into expansion territory.

The prices paid index fell to 67.7, its lowest level in four months, suggesting a moderation in the pace of cost increases for businesses.

The minutes from the Federal Reserve's June FOMC meeting revealed that a growing number of officials view the AI investment boom as a potential key driver of persistently high inflation, alongside risks from Middle East conflicts and tariff policies.

The minutes indicated that if inflation remains elevated this year, further interest rate hikes may be necessary, whereas the Fed could maintain its current stance if price pressures ease quickly.

Diverging views on monetary policy communication within the Fed are becoming apparent, with Governor Waller stating that forward guidance remains a valuable policy tool, contrasting with Chair Wash's position.

Fed Chair Wash is scheduled to appear before the Senate Banking Committee on July 15th for a hearing on the Fed's semiannual Monetary Policy Report submitted to Congress, which may provide some guidance on the interest rate and policy outlook.

Key Events for Precious Metals

The precious metals market faces a dual test this week with "Chair Wash's Congressional debut and CPI data."

The US June CPI report is set for release on July 14th, coinciding with Chair Wash's testimony before the House of Representatives.

Following the PPI data release on the 15th, Chair Wash will then testify before the Senate.

The combined impact of inflation figures and policy signals is expected to create volatility in precious metals prices.

As the US-Iran conflict enters a second round, the market initially reverted to trading on rising inflation and rate expectations.

However, the subsequent weekly price action in both oil and gold suggests limited market confidence in the longevity of this conflict.

Furthermore, a lack of additional positive catalysts has prevented a significant rebound in gold prices.

The overall trend remains one of weakness and technical correction, indicating that gold's footing within its current bottoming range is not yet solid.

With geopolitical factors and shifting Fed policy signals creating a complex environment, significant divergence between bullish and bearish views persists, warranting a cautious approach.