Gold Trading Alert: Middle East War Spurs Oil Prices Past $100, US Dollar Surges to Three-Week High, Gold Price Plunges 2%! Do Bulls Still Have a Chance?

Huitong Network July 24 – On July 23, spot gold plunged 2%, closing at $4049.26/oz. The escalation of the Middle East conflict and Houthi attacks on Saudi oil tankers pushed Brent crude above $100/barrel, intensifying inflation concerns and boosting both the US dollar and US Treasury yields. The probability of a Fed rate hike in September has risen to 83%, putting obvious pressure on gold. In the short term, gold prices face resistance, but geopolitical risks and economic uncertainty continue to support its long-term safe-haven value.

On Thursday, July 23, spot gold prices fell sharply by more than 2%, quickly retreating from the two-week high touched in the previous session and finally closing at $4049.26 per ounce. Over the same period, the US August gold futures contract also dropped about 2.5% to $4050.20. This is the combined result of the sharp escalation of Middle Eastern geopolitical conflict, surging oil prices pushing up inflation expectations, the rising likelihood of a Fed rate hike in September, and the US dollar reaching a three-week high. In early Asian trading on Friday, July 24, spot gold saw narrow-range fluctuations, currently trading at $4048/oz.

Immediate Catalyst for Gold Price Correction: Dual Squeeze from Dollar and Yields

The decline in gold prices was first rooted in dual technical and currency pressures. The dollar index rose 0.32% on the day to 101.44, marking the highest single-day gain in nearly a month and an intraday high of 101.54—its highest since July 2. This directly increases the holding cost of dollar-denominated gold for overseas investors. Meanwhile, the yield on the US 10-year Treasury note climbed to a more than one-year high of 4.697%, hitting 4.7135% intraday. This increase in risk-free returns presents a clear alternative to non-yielding gold.

Market analysts point out that the rapid rise in oil prices is driving up overall bond yields. Investors widely believe that the return of inflationary pressure will force central banks to stay hawkish for longer. Jim Wyckoff, market analyst at American Gold Exchange, commented bluntly that rising bond yields are the biggest enemy for gold and silver bulls, as these precious metals themselves do not provide returns. In such an environment, gold’s safe-haven attribute is weakened by its opportunity cost, leading capital to flow from gold to higher-yielding fixed-income assets.

Escalating Middle East Conflict: Oil Prices Surge Past $100 Fuelling Global Supply Concerns

The deeper root of the gold price drop lies in the sudden escalation of the Middle East situation. On July 23, Yemen's Houthi forces announced attacks on two Saudi oil tankers, extending the conflict to the Red Sea—a key global shipping chokepoint. Prior to this, shipping through the Strait of Hormuz was near a standstill; now, the Bab el-Mandeb Strait faces renewed threats, subjecting global oil supply chains to a double squeeze.

Brent crude futures prices consequently soared 7% to close at $100.69 per barrel, marking their first close above $100 since late May. US crude also rose 6.2% to $92.19. Institutions like Goldman Sachs warn that if disruptions in both straits persist, oil prices could break through $120 in Q4, with 2025’s average potentially remaining elevated around $100. The oil price surge is directly fuelling inflation expectations, and markets worry that rising energy costs will push up global prices, especially as signals of global economic slowdown have already appeared.

US President Trump reacted strongly, stating on Truth Social that if Houthi attacks continue, Iran will be held responsible and he vowed to enact “significant military punishment.” Trump is also considering using frozen Iranian funds to compensate for losses to ships and cargo. This tough stance further amplifies geopolitical risk premiums, keeping oil prices high, and indirectly dampens gold’s safe-haven buying. In the current environment, investors are more inclined to believe that high oil prices will force the Fed into more aggressive action, rather than triggering the traditional gold-buying safe-haven logic.

Fed Policy Uncertainty: Probability of Rate Hike Rises Sharply

Investors are now closely watching the Fed’s upcoming two-day policy meeting next week. Data from the CME FedWatch tool shows that traders' expectations for a September rate hike have climbed from 68% to approximately 83%, while the probability for a July hike has also risen to about 36%. Statements from new Fed Chair Walsh are believed to avoid providing much forward guidance, further heightening policy uncertainty.

TD Securities’ Head of US Rates Strategy, Gennadiy Goldberg, analyzes that current rate volatility reflects twofold concerns: a renewed rise in inflation and relatively resilient economic growth. Stronger-than-expected US initial jobless claims data also underscore the assessment of economic resilience. Against this backdrop, market expectations for the Fed to keep rates higher for longer—or to hike even further—have significantly strengthened. The two-year US Treasury yield has reached 4.358%, while the 30-year yield has remained above 5% for several days, setting multi-year records and reflecting compounded long-term fiscal and inflation concerns.

Broader Market Impact: New Tariffs & Dollar Strength

In addition to Middle East tensions and Fed dynamics, the latest round of US tariffs is also noteworthy. The US government announced 10% to 12.5% duties on 60 major trading partners, aiming to combat forced labor and enacted under the more legally robust Section 301. Though the direct economic impact may be limited, it is expected to increase costs for businesses and consumers, further fuelling inflation pressure and supporting the dollar.

The dollar’s strength not only squeezes gold, but also reflects confidence in US economic resilience against energy price shocks compared to Europe and Japan. Overall, risk assets are facing multiple challenges, and gold has not fully played its traditional safe-haven role in this round of risk aversion.

Outlook: Gold Under Short-term Pressure, Retaining Long-term Allocation Value

In summary, the current drop in gold prices is the result of the combined effects of geopolitical conflicts boosting energy costs, rising inflation expectations, a strengthening dollar, and a hawkish shift in Fed policy expectations. The further evolution of the Middle East situation—including military responses from the Trump administration, preparations from Houthi forces, and the duration of real shipping disruptions—will be key variables for the short-term gold price trend.

In the near term, gold may continue to face pressure, especially as market sentiment remains cautious ahead of the Fed meeting, with focus on the $4000 support level. However, in the medium-to-long term, persistent geopolitical risks, global economic uncertainty, and potential systemic financial stress continue to provide solid support for gold. Investors need to closely monitor oil price dynamics, Fed wording, and the latest Middle East developments to seek reasonable entry points amid volatility.


(Spot gold daily chart, source: Yihuizhong)

Beijing Time 07:15, spot gold is now quoted at $4048.58/oz.