Summary of Key Points
On August 5th, gold (in both spot and futures markets, as well as the domestic Shanghai Gold market) and the precious metals sector in the A-share market saw significant gains, while international crude oil prices plummeted. The main reason for this was the improved prospects for navigation through the Strait of Hormuz, following closer negotiations between the United States and Iran towards a temporary agreement. The ratio of gold to oil reached a historic high, with institutions generally believing that $4,000 per ounce could mark the bottom for gold prices, with a long-term bullish outlook. However, in the short term, attention should be paid to the U.S. non-farm payroll data and the potential for instability in the Middle East region. Meanwhile, the continuous gold purchases by central banks around the world provide support for gold prices in the long run.
Detailed Analysis
1. The Core Reason for Gold's Surge: The "Hedge Reversal" Due to the Strait of Hormuz
The sudden increase in gold prices was driven by the potential reopening of the Strait of Hormuz, which is a critical route for global oil transportation, with one-third of all seaborne oil passing through it. In the past, when tensions in the strait (such as blockades by Iran) arose, oil prices would soar, leading to concerns about inflation and possible interest rate hikes by the Federal Reserve (Fed), which would in turn cause gold prices to fall. With the near-completion of an agreement between the U.S. and Iran, oil prices have dropped, reducing inflationary pressures and lowering the likelihood of Fed rate hikes, thus boosting gold prices.
In simple terms: Reopening of the strait → Lower oil prices → Reduced inflation → Lower probability of Fed rate hikes → Rising gold prices. This increase in gold prices is more due to expectations of loose monetary policy resulting from the alleviation of geopolitical risks, rather than a direct hedge against these risks.
2. The "Extreme Contrast" Between Gold and Oil: Why Does the seesaw Effect Resurface?
While gold prices are rising, crude oil prices have plummeted this week, with Brent and WTI crude falling by more than 11%, and domestic SC crude falling by nearly 6%. The reason is straightforward: the reopening of the strait means increased oil supply, leading to lower oil prices. The seesaw relationship between gold and oil has re-emerged, as oil prices affect inflation, which in turn influences Fed policy. Lower oil prices → Reduced inflationary pressures → Lower probability of Fed rate hikes → Rising gold prices.
The ratio of gold to oil (how many barrels of crude can be bought with one ounce of gold) has now reached 53 times, far exceeding the historical average of 15-25 times, indicating that gold is much more expensive relative to oil. This also reflects market expectations of a slowdown in inflation.
3. Has Gold Reached Its Bottom?
Many institutions believe that gold has reached a temporary bottom around $4,000 per ounce. CITIC Securities suggests that gold has declined significantly this year and that $4,000 per ounce could mark the bottom of the current cycle. In the long term, Citibank predicts that gold prices will reach $4,500 by the fourth quarter of 2026 and $5,000 by the first half of 2027. TD Securities is even more optimistic, predicting a price of $5,200 by the end of the year.
The support for gold prices comes from central banks around the world. The People's Bank of China has been purchasing gold for 20 consecutive months, setting a new record for the longest continuous period of purchases, while South Korea has resumed gold buying after a 13-year hiatus. These large buyers are providing stability to gold prices.
4. The Short-Term Test: Non-Farm Payroll Data Will Determine Gold Prices
This Friday's U.S. July non-farm payroll report is crucial for short-term trends. The report provides insights into the health of the U.S. economy: if employment is strong and wages are rising, it indicates a robust economy, which may lead to no interest rate cuts or even hikes by the Fed, causing the dollar and Treasury yields to rise and gold prices to fall. Conversely, weak employment data could lead to Fed rate cuts and higher gold prices.
Institutions warn that employment and inflation data in August will influence whether the Fed raises rates in September, so gold prices are likely to experience volatility rather than a one-way trend in the short term.
5. The Middle East Situation Is Uncertain: Don't Rush to Buy
Although the prospects for reopening the strait have improved, the details of the U.S.-Iran agreement are still under negotiation, and there is a possibility of failure. If tensions in the region rise again, oil prices could rebound, affecting gold prices. Zhengxin Futures notes that overall tensions between the two countries have eased, but in the short term, gold prices may fluctuate based on developments in the Middle East, energy prices, and employment data.
In summary, this analysis explains the key factors behind gold price movements in plain language, making it easy for non-financial professionals to understand the underlying logic behind these changes.