Original Title:Gold Breaks Above $4,300: Is the Uptrend Resuming?
The rise in gold occurs first at the moment when the opportunity cost of holding it is repriced.
Core insight:
In early August, the rise in gold prices was not driven by geopolitical risks, but rather by the market repricing its expectations of the Fed's rate hikes following a decline in oil prices, lowering the opportunity cost of holding gold.
Key elements:
1. Spot gold rose to $4,285.84 per ounce, marking its fourth consecutive day of gains and the highest level since mid-June, while oil prices declined amid expectations of resumed navigation through the Strait of Hormuz.
2. Market expectations for a September rate hike dropped from 67% to 55% within two days, causing U.S. Treasury yields and the dollar index to weaken simultaneously, boosting the appeal of interest-free assets like gold.
3. The 10-year TIPS yield decreased from 2.47% to 2.40%, lowering the cost of holding gold due to declining real interest rates.
At the same time, a weaker U.S. dollar eases pricing pressure for overseas buyers.
4. In the second quarter, the average gold price according to the London Bullion Market Association rose 37% year-over-year, but total gold demand, including OTC, remained flat at 1,269 metric tons, as price appreciation did not drive volume growth.
5. Demand value reached a record $380 billion in the first half of the year, but demand volume increased by only 2% year-over-year, indicating that the value growth stemmed from weight changes rather than broader purchasing increases.
6. Gold ETFs experienced net outflows in the second quarter, but increased central bank gold purchases and expanded OTC programs provided a counterbalance, resulting in a structural divergence between public and private market flows.
7. The World Gold Council notes that its OTC project includes changes in exchange inventories and statistical residuals; central bank data have been revised downward due to lags, and a single indicator cannot reflect the full market picture.
In early August, it wasn't gold but crude oil that first turned in the market. Expectations of the Strait of Hormuz resuming navigation lowered oil prices, following the usual script.
Safe-haven assets should also be cooling down. Yet gold is moving higher. According to Reuters on August 6, spot gold was at $4,285.84 per ounce,
Rising for the fourth consecutive day, reaching the highest level since mid-June.
This can easily be fitted into the box of “geopolitical risks remain.” But another lead from Reuters moves faster: after oil prices retreated, the dollar and U.S. bond yields weakened in tandem.
The market is beginning to reassess how high the Fed will need to raise interest rates. Gold's rally began at the moment the opportunity cost of holding it was repriced.
The first thing to change in the short term is the interest rate pricing.
There is no direct supply and demand pipeline between crude oil and gold. Crude oil influences market perceptions of inflation.
When energy prices stop rising further, the urgency to continue raising interest rates becomes less pressing.
According to Reuters on August 6, market expectations for another rate hike in September fell from 67% to 55% over two days.
The same report mentioned that lower U.S. Treasury yields also put pressure on the U.S. dollar index.
This explains why a message that appears to reduce geopolitical risk can still provide a short-term boost to gold.
Chart data sourced from Reuters intraday quotes on August 4, August 5, and August 6.
The three quotes in the chart are not daily candles, nor are they closing prices. They are like snapshots of the market taken at different times.
As prices rise, interest rate pricing is receding—these are merely two sides of the same macroeconomic reassessment.
The St. Louis Fed FRED database shows that the 10-year TIPS yield has decreased from 2.47% to 2.40%.
For gold, this isn't an abstract macro term. It means the risk-free return you could have earned on that money if you hadn't bought gold has decreased slightly.
The barrier for interest-free assets has been lowered, and the weakening dollar has reduced pricing costs for overseas buyers, providing a foothold for short-term buying pressure.
Price revaluation, no additional tonnage added
Prices rising quickly can easily make it seem like the whole world is rushing to buy gold. But the World Gold Council’s second-quarter data presents a much quieter picture.
The London Bullion Market Association's afternoon gold price average rose 37% year-over-year, while total gold demand, including OTC, remained roughly flat at 1,269 metric tons.
The World Gold Council's data places these two items on the same overall table.
Data source: World Gold Council
The focus of this chart is not that "demand has not grown," but that the definition of demand has changed.
Total demand includes over-the-counter trading and other balancing items; it is not the total number of gold bars withdrawn by retail consumers.
The nearly unchanged volume in the chart indicates that the price adjustment was primarily a revaluation, rather than a sudden increase in purchasing volume from all types of buyers.
The World Gold Council's first-half statistics also showed that demand value reached a record of $380 billion, while demand volume increased by only 2% year-over-year.
This data shows that the increased demand amount has not been translated into a proportional increase in volume.
The price reflects changes in the weight of different demand components, not a synchronized increase in purchase volume by all types of buyers.
An ETF is not the ledger for gold.
The most prominent sellers came from gold ETFs. In the second quarter, ETFs and similar products turned net outflows.
Meanwhile, net gold purchases by central banks and other official institutions, as recorded by the World Gold Council, have rebounded, and OTC and other items have also expanded.
Place these projects side by side to see that the gold market is not breathing solely based on a single open interest curve.
Data source: World Gold Council
But this chart cannot be interpreted as a settlement ticket showing who took the ETF sell orders.
The World Gold Council explicitly states in its methodology that OTC and other categories include changes in exchange inventories, unobserved changes in manufacturing inventories, and statistical residuals.
It shows that outflows from publicly traded ETFs do not equate to a lack of demand across the entire market, and cannot be traced to specific countries or types of capital.
Central bank data should not be plotted as a straight line always going upward. The World Gold Council has revised down its official estimate of gold purchases for the first quarter.
The reason is that reports and statistics themselves involve delays. Treating ETFs as the sole thermometer and central banks as the only buyers flattens a multi-layered market into a single narrative.
The decline in oil prices brings a reduction in the opportunity cost of short-term trades. The decoupling of price from tonnage, and the divergence between public and non-public traffic,
This indicates that when gold rises, what often changes in the market is the structure of holders.
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