CITIC Futures: Geopolitical conflict boosts inflation concerns, and gold’s rebound is still constrained by interest rates

The United States has launched repeated strikes against Iran, and Trump said the Iran ceasefire “has already ended,” further escalating the situation in the Middle East. In the short term, geopolitical escalation should have boosted gold’s safe-haven demand, but the market is currently more focused on its impact on energy prices and inflation expectations. Oil prices rising, combined with the U.S. having previously revoked exemptions for Iran’s crude oil sales, has raised market concerns that an energy shock could push inflation higher again, thereby strengthening the likelihood that the Federal Reserve will keep interest rates high for longer—and even resume rate hikes. For non-interest-bearing assets like gold, this path weakens the traditional safe-haven buying support.

The Federal Reserve’s June meeting minutes show that some officials believed there were grounds for rate hikes. While the final view still supported keeping rates unchanged, the minutes overall reflected rising concerns about inflation, while worries about the labor market eased somewhat. In other words, the policy focus still leans more toward controlling inflation rather than quickly pivoting to easing. Recently, gold has fallen noticeably from levels seen before the Middle East war; some profits from the three-year bull market have continued to be realized, and it even dipped below the $4,000 level. However, so far there has been no sign of large-scale short-position buildup, suggesting the market is more in a phase of long de-leveraging and position rebalancing rather than trend-driven short dominance.

In the long and medium term, the People’s Bank of China’s continued gold purchases, Asia’s demand for gold allocation, and the Hong Kong gold clearing system entering trial operation will continue to provide structural support for gold. But in the short run, prices will still be driven mainly by the interest-rate side. If oil prices continue to rise and lift inflation expectations, real interest rates are unlikely to fall meaningfully, and gold’s upside rebound room will remain limited. If the U.S.-Iran conflict eases temporarily and oil prices pull back, interest-rate pressure could ease at the margin, giving gold a chance for low-level recovery. (CITIC Futures)