【TMGM Financial Recap】Iran Bill Supports Oil Rebound, Gold Faces Mild Pressure as July Nonfarm Payrolls Take Center Stage!
On Thursday, spot gold rallied before pulling back. This reversal was far more than a simple technical correction—it reflected the intense collision of three major forces: geopolitical tensions, the energy market, and expectations for Federal Reserve policy. The market is now at a critical turning point. Iran's parliament is reviewing a bill that would prohibit hostile vessels from passing through the Strait of Hormuz, directly driving oil prices higher and reviving inflation concerns. Meanwhile, Friday's upcoming US Nonfarm Payrolls (NFP) report will become the key factor determining the Fed's interest rate path and the medium-term direction of gold.
The main catalyst behind gold's latest rally has been the sharp escalation of tensions in the Middle East. According to Iran's semi-official Fars News Agency, citing a member of parliament, a parliamentary committee is reviewing a preliminary bill that would ban vessels from the United States, Israel, and other countries deemed "hostile" from transiting the Strait of Hormuz. Violators could face fines of up to 20% of the value of their cargo. The news immediately ignited the crude oil market.
As the world's most important energy trade corridor, any indication of restrictions in the Strait of Hormuz quickly feeds through to oil prices. If crude oil prices continue to rise, Iran's proposed bill could have far-reaching implications by intensifying inflationary pressures. Higher energy prices increase manufacturers' costs, which are ultimately passed on to consumers, pushing overall inflation higher. Against a backdrop where global inflation remains elevated, this form of cost-push inflation strengthens the case for central banks to keep interest rates higher for longer.
The negative correlation between gold and interest rates was clearly reflected in Thursday's trading. The surge in oil prices reignited inflation concerns, prompting investors to rapidly reprice expectations for the Federal Reserve's policy path. The market currently estimates the probability of a September Fed rate hike at around 57% to 59%, while the probability of a December rate hike has climbed to as high as 84%. The yield on the two-year US Treasury rose 7.26 basis points to 4.252%, while the 10-year Treasury yield increased 5.67 basis points to 4.674%. Rising bond yields directly increase the opportunity cost of holding non-yielding assets such as gold, putting downward pressure on prices.
The Federal Reserve's policy outlook remains the primary driver of gold prices, and Friday's US employment data will directly influence the Fed's stance on interest rates. Against this backdrop, gold's rally and subsequent pullback can be viewed as the market temporarily shifting its focus from safe-haven demand to interest rate expectations. Wednesday's sharp rise in gold primarily reflected an immediate reaction to escalating geopolitical risks, while Thursday's reversal highlighted investors' repricing of accelerating inflation risks and higher odds of further rate hikes. The upcoming July US Nonfarm Payrolls report has now become the market's main focus.
Market Insight:
Taking all current factors into consideration, gold is now in a classic tug-of-war between bullish and bearish forces. On one hand, geopolitical risks in the Middle East remain far from resolved. On the other hand, the Federal Reserve's higher-for-longer stance is being reinforced by rising oil prices. If Friday's Nonfarm Payrolls data comes in strong, expectations for further rate hikes could strengthen, putting additional pressure on gold. Even if the data is weak, as long as inflation concerns persist, the market's scope for pricing in rate cuts will remain limited. Ultimately, gold's long-term value will continue to depend on the direction of real interest rates.
