Sive Morten
Special Consultant to the FPA
- Messages
- 22,091
FUNDAMENTALS
Gold market has shown impressive performance this week, following the scenario that we've made last time. The overall direction was different compares to FX market and more evident to the downside. With the escalation of the M. East conflict and solid rally on the US yields gold starts feeling more pressure. Next week with the Fed on the table volatility is promised to be high as well. As gold is coming to a few important targets we hope to get new trading setups through the week.
MARKET OVERVIEW
Despite the pullback on Friday, Gold has shown net weekly drop as escalating conflict in the Middle East continued to push up energy prices, fueling bets the Federal Reserve will tighten monetary policy to contain inflation. Bullion fell as much as 2.2% and traded near $4,050 an ounce, paring gains from the previous two days largely fueled by what ING Bank N/V commodities strategist Ewa Manthey called dip-buying.
US President Donald Trump said he would hold Iran responsible for further attacks by the Yemen-based Houthis on Red Sea ships, after the group opened a new front in the US-Iran war by targeting two Saudi Arabian oil tankers. Brent crude, a benchmark oil price, rallied above $100 a barrel, while two-year Treasury yields rose for a sixth straight day. U.S. Secretary of State Marco Rubio said Washington was willing to negotiate an end to the Iran crisis but Tehran was not serious about talks.
Cleveland Fed President Beth Hammack added her voice to a growing chorus of policymakers arguing interest rates may need to rise to beat back persistent inflation, setting up a charged debate at the Fed's next meeting and the possibility of dissents at Kevin Warsh's second meeting as the central bank's chairman.
Adding to the uncertainty, the US announced it will collect duties of 10% to 12.5% on imports from most major trading partners, alleging forced labor in their supply chains.
Elsewhere, first-time applications for US unemployment benefits fell last week to the lowest level since 1969. Rising energy prices, alongside a seemingly resilient labor market, increase the possibility that the Fed will keep interest rates higher for longer. Increased borrowing costs are a headwind for the non-yielding precious metal. Swap traders currently see a 36% chance that the Fed will raise rates at its meeting next week. At least one hike is already priced in for September, and a second could come before the end of the year. The Fed is likely to keep its key interest rate steady for the rest of 2026, data from a Reuters Poll showed.
Even amid losses, gold prices recently have largely held above the $4,000 mark, which some traders see as a support level. Declines in volatility for the precious metal are also drawing buyers, said Justin Lin, an analyst at Global X ETFs, referring to the sharp decline in volatility to a level last seen in early June.
Chinese gold imports rose to a two-year high in June, underscoring resilient demand in the world’s biggest bullion market after a plunge in international prices.
Overseas purchases rose a third month to about 173 tons, according to the latest customs data, the highest mark since March 2024. Cheaper prices and a stronger yuan kept investors interested, while banks were motivated to use up import quotas and stock up on bullion to meet retail commitments.
Accumulation plans are offered by numerous banks and allow individuals to pick up gold in small increments. They’re one of the main ways for Chinese retail investors to gain exposure to bullion. Bullion-backed exchange traded funds, another popular investment, have also seen net inflows of around 28 tons this year, according to a tally by the Shanghai Gold Exchange.
The risk-reward ratio for gold has improved and become more attractive to investors, according to analysts at the American bank Wells Fargo. They predict that the price of gold will rise to $5300-5500 per ounce by the end of 2026, and expect further growth to $5800-6000 by the end of 2027. The main factors driving this growth, according to analysts, are the sustained demand for gold from central banks, the increasing government debt of major economies, persistent inflationary risks, and geopolitical uncertainty. According to Wells Fargo, these factors will continue to encourage investors to buy gold as one of the primary safe-haven assets.
FAT SOIL FOR GOLD
Despite the vision of stability and silence, the global situation remains complex. Goldman Sachs suggests that the risk of global conflict has reached its highest level since the mid-1960s. Now it is higher than during the Cuban missile crisis, Cold war and after 9/11. At the same time, countries are dividing into opposing camps faster than ever before.States are increasingly choosing one side or the other instead of remaining neutral, and historical experience shows that this is more likely to accelerate conflicts than prevent them. Goldman Sachs believes that this is not a temporary surge caused by a single war. It is about several simultaneously developing geopolitical fault lines, and, according to their forecast, these trends will intensify throughout the remainder of the decade.
Meantime In the United States, 372 large companies filed for bankruptcy in the first 6 months of 2026, which is the highest number for the first half of the year in 16 years. this figure exceeds the total number of bankruptcies for the entire year of 2022, when 317 companies declared bankruptcy. Industrial companies are leading, with 50 companies having filed for bankruptcy since the beginning of the year. They are followed by companies in the consumer discretionary sector – 35 bankruptcies, and companies in the healthcare sector – 26 bankruptcies.
Stock market bubble is coming to very dangerous lines. Analysts at Panmure Liberum have presented a very revealing chart. In 1929 and 2000, the CAPE ratio was significantly overvalued (1.8 and 3.3 standard deviations, respectively), but company profits were within a normal range. Now, everything is different:
- CAPE = 41.0x (2.9σ above the trend)
- EPS = 1.8σ above the trend
In other words, both valuations and profits are inflated simultaneously. If we remove the effect of the "profit bubble," the current CAPE ratio jumps to 67.6x – that's 4.6 standard deviations above the trend. To put this into perspective: such an event (assuming a normal distribution) should occur approximately once every ~43,000 years. When (not if) profits begin to normalize – and history shows that this always happens – the correction in valuations could be much more severe than the market is currently willing to accept.
Alphabet reported its second-quarter results and showed something the company hasn't seen since going public: FCF of -$5.9 billion. For the first time in over 20 years. What was recently considered a "bullish signal" (we are spending even more on AI) is now perceived by the market in a completely different way. If, previously, an increase in CAPEX was seen as a bet on a technological revolution, now it is perceived as a necessity to maintain the narrative at all costs.
Yields on long-term government bonds in developed countries are again at their highest levels, with US 10-year bonds at 4.65% and 30-year bonds hitting record highs of 5.15%... the market is starting to factor in a rate hike by the Federal Reserve in July. The yen has hit multi-year lows around 163 yen per dollar [after which, it seems, new interventions began]. And TACO is looming again...
China continues its 20-month streak of gold purchases: in June 2026, the People's Bank of China acquired another 15 metric tons. The total reserves now amount to 2347 tons. Analysts attribute this move to a shift away from the US dollar. In the first quarter of 2026, global central banks also increased their gold purchases by 17%. Traders are monitoring the potential for a rebound in gold prices and are tracking altcoins that are worth watching given the changing dynamics in the cryptocurrency market. Despite the recent decline in precious metal prices, China's strategic gold purchases indicate a continued interest in diversifying away from the US dollar, against the backdrop of ongoing geopolitical tensions.
Despite the rising price of oil - gold, and even the Bitcoin are raising. It's not about risk perception; the risks due to the renewed closure of the straits have only increased, and the consequences have been exacerbated. The issue is the amount of dollars in the global dollar system. Several interconnected processes have occurred during the period when oil prices were high.
- Countries/central banks that had reserves borrowed dollars from banks/central banks by pledging securities, in order to provide these funds to banks that were lending dollars to oil importers.
- Countries/central banks that did not have reserves borrowed dollars against other collateral and did the same thing - provided the money to banks.
- Countries/central banks that had swap lines with the Federal Reserve or the ability to borrow from the U.S. Treasury did the same.
- A certain number of central banks and even non-central banks sold gold or borrowed dollars against gold, and the buyers or creditors hedged, which put downward pressure on the price of gold.
And so on.
This resulted in more dollars in circulation (dollars were multiplied through credit), but they began to circulate in the commodity market - oil, petroleum products, LNG, fertilizers, and so on. As soon as the price of oil and other commodities fell, the dollars didn't disappear. The credit didn't disappear. But the dollars began to slowly flow back - into gold. But not into the stock market, because the AI hype is slowly fading, and it's not just that skepticism is accumulating, but rather that there is a shift towards a less optimistic outlook. This was further reinforced by the selling of stocks during the initial dollar shortage.
What does this tell us in general in the current situation? That the rising price of oil, if it exceeds previous average highs, will again create a dollar shortage in the system, and dollars will be created through credit. And when the war in the Strait of Hormuz, along with the Bab-el-Mandeb, ends again, the money will flow back, at least into gold. If the prices don't skyrocket, then we will simply see a sideways trend until the straits are reopened.
Let's talk about the Houthi attack on Saudi tankers in the Red Sea. Objectively, the Houthis didn't just attack a Saudi tanker. They attacked a backup route for the global oil system. When the Strait of Hormuz is blocked, Saudi Arabia can transport oil through the East-West pipeline from the east of the country to the port of Yanbu on the Red Sea. Its capacity reaches 7 million barrels per day, with approximately 5 million of that going to exports. This is Saudi Arabia's main safeguard against problems in the Persian Gulf. That's precisely what these so-called "Bedouins in sandals" are now targeting.
The market has reassessed the probability that there is no longer a safe backup route for oil. The physical deficit begins not when the last well is blown up. It begins when a shipowner doesn't want to send a tanker, an insurer asks for three times more, a bank increases the cost of financing the cargo, and the captain prefers to turn away to avoid trouble. It's not just oil that becomes more expensive. Freight, insurance, collateral, working capital, diesel, fertilizers, plastics, and all the logistics surrounding them become more expensive. The market is trading not only on what has already happened, but also on the price of the next attack. It doesn't take an aircraft carrier to close a strait. Sometimes, it's enough to change a single cell in a London insurer's Excel spreadsheet.
In 1973, the oil shock was created by state embargoes. In 2026, it could be created by two narrow straits, a few rockets, and the decision of an underwriter. lobalization has proven to be a very reliable system, but only as long as no one is shooting.
Finally, about the Fed. They are starting to realize that the key interest rate affects the economy not only through the textbook model – raise the rate, curb demand, defeat inflation, and receive a medal. A significant government debt creates an unpleasant situation. The higher the rate, the more expensive it is to service that debt. The budget pays more to bondholders, the Fed pays more to banks on reserves, the deficit widens, and even more new bonds have to be issued. As a result, the anti-inflationary tool simultaneously creates an additional stream of income and government spending.
This creates a paradox. A high rate slows down private lending, but accelerates the government's interest expenses. And at some point, the second effect may become comparable to the first. This leads to a possible scenario for a new Fed policy. The rate is lowered to reduce the cost of financing the economy and partially compensate for the contraction from the balance sheet reduction. At the same time, the Fed reduces its own asset portfolio, and banking regulations are adjusted to allow the private sector to absorb more Treasury bonds.
This is no longer the fantasy of conspiracy theorists fighting against the Fed's perceived stupidity. In March, Fed Governor Stephen Miran directly described this connection: a smaller balance sheet can be combined with a lower rate, and regulatory changes can make it easier for banks and dealers to buy Treasuries. Formally, everything looks almost perfect. The rate is lower, the Fed's balance sheet is shrinking, there is no direct QE, the market for government debt is getting buyers, and the rate cut can be presented not as a surrender to inflation, but as part of a more complex anti-inflationary structure.
So, the question will no longer be: what rate looks high enough. The question will be different: at what rate is the aggregate inflationary effect of the entire financial system minimized? This is currently a possible scenario, not a completed revolution. But if the Fed does move in this direction, it will be a significant departure from directly managing the economy with a single price lever. It may turn out that the rate sometimes needs to be lowered not because inflation has been defeated, but because the high rate itself has become part of the inflationary mechanism.
So, maybe we do not see it in day-by-day data and market doesn't show fast reaction on all these conclusions. But it is slowly boiling up and number of problems in global financial system are raising. This explains why Central Banks start buying gold not in 2022 but in 2008 right after the Subprime crisis. And this process is not interrupted, it is keep going now, migrating in other economy sphere because of unwise Fed dovish policy and uncontrolled QE and appearing in the ways that nobody has expected. It means that big but gently acting bullish factor for gold exists and it is very important and it will keep working until structural mismatches and deviations in economy will not be fixed either naturally through crisis or recession or manually via controlled inflationary spiral and devaluation.
Gold market has shown impressive performance this week, following the scenario that we've made last time. The overall direction was different compares to FX market and more evident to the downside. With the escalation of the M. East conflict and solid rally on the US yields gold starts feeling more pressure. Next week with the Fed on the table volatility is promised to be high as well. As gold is coming to a few important targets we hope to get new trading setups through the week.
MARKET OVERVIEW
Despite the pullback on Friday, Gold has shown net weekly drop as escalating conflict in the Middle East continued to push up energy prices, fueling bets the Federal Reserve will tighten monetary policy to contain inflation. Bullion fell as much as 2.2% and traded near $4,050 an ounce, paring gains from the previous two days largely fueled by what ING Bank N/V commodities strategist Ewa Manthey called dip-buying.
US President Donald Trump said he would hold Iran responsible for further attacks by the Yemen-based Houthis on Red Sea ships, after the group opened a new front in the US-Iran war by targeting two Saudi Arabian oil tankers. Brent crude, a benchmark oil price, rallied above $100 a barrel, while two-year Treasury yields rose for a sixth straight day. U.S. Secretary of State Marco Rubio said Washington was willing to negotiate an end to the Iran crisis but Tehran was not serious about talks.
Cleveland Fed President Beth Hammack added her voice to a growing chorus of policymakers arguing interest rates may need to rise to beat back persistent inflation, setting up a charged debate at the Fed's next meeting and the possibility of dissents at Kevin Warsh's second meeting as the central bank's chairman.
Adding to the uncertainty, the US announced it will collect duties of 10% to 12.5% on imports from most major trading partners, alleging forced labor in their supply chains.
Elsewhere, first-time applications for US unemployment benefits fell last week to the lowest level since 1969. Rising energy prices, alongside a seemingly resilient labor market, increase the possibility that the Fed will keep interest rates higher for longer. Increased borrowing costs are a headwind for the non-yielding precious metal. Swap traders currently see a 36% chance that the Fed will raise rates at its meeting next week. At least one hike is already priced in for September, and a second could come before the end of the year. The Fed is likely to keep its key interest rate steady for the rest of 2026, data from a Reuters Poll showed.
Even amid losses, gold prices recently have largely held above the $4,000 mark, which some traders see as a support level. Declines in volatility for the precious metal are also drawing buyers, said Justin Lin, an analyst at Global X ETFs, referring to the sharp decline in volatility to a level last seen in early June.
Chinese gold imports rose to a two-year high in June, underscoring resilient demand in the world’s biggest bullion market after a plunge in international prices.
Overseas purchases rose a third month to about 173 tons, according to the latest customs data, the highest mark since March 2024. Cheaper prices and a stronger yuan kept investors interested, while banks were motivated to use up import quotas and stock up on bullion to meet retail commitments.
Accumulation plans are offered by numerous banks and allow individuals to pick up gold in small increments. They’re one of the main ways for Chinese retail investors to gain exposure to bullion. Bullion-backed exchange traded funds, another popular investment, have also seen net inflows of around 28 tons this year, according to a tally by the Shanghai Gold Exchange.
The risk-reward ratio for gold has improved and become more attractive to investors, according to analysts at the American bank Wells Fargo. They predict that the price of gold will rise to $5300-5500 per ounce by the end of 2026, and expect further growth to $5800-6000 by the end of 2027. The main factors driving this growth, according to analysts, are the sustained demand for gold from central banks, the increasing government debt of major economies, persistent inflationary risks, and geopolitical uncertainty. According to Wells Fargo, these factors will continue to encourage investors to buy gold as one of the primary safe-haven assets.
FAT SOIL FOR GOLD
Despite the vision of stability and silence, the global situation remains complex. Goldman Sachs suggests that the risk of global conflict has reached its highest level since the mid-1960s. Now it is higher than during the Cuban missile crisis, Cold war and after 9/11. At the same time, countries are dividing into opposing camps faster than ever before.States are increasingly choosing one side or the other instead of remaining neutral, and historical experience shows that this is more likely to accelerate conflicts than prevent them. Goldman Sachs believes that this is not a temporary surge caused by a single war. It is about several simultaneously developing geopolitical fault lines, and, according to their forecast, these trends will intensify throughout the remainder of the decade.
Meantime In the United States, 372 large companies filed for bankruptcy in the first 6 months of 2026, which is the highest number for the first half of the year in 16 years. this figure exceeds the total number of bankruptcies for the entire year of 2022, when 317 companies declared bankruptcy. Industrial companies are leading, with 50 companies having filed for bankruptcy since the beginning of the year. They are followed by companies in the consumer discretionary sector – 35 bankruptcies, and companies in the healthcare sector – 26 bankruptcies.
Stock market bubble is coming to very dangerous lines. Analysts at Panmure Liberum have presented a very revealing chart. In 1929 and 2000, the CAPE ratio was significantly overvalued (1.8 and 3.3 standard deviations, respectively), but company profits were within a normal range. Now, everything is different:
- CAPE = 41.0x (2.9σ above the trend)
- EPS = 1.8σ above the trend
In other words, both valuations and profits are inflated simultaneously. If we remove the effect of the "profit bubble," the current CAPE ratio jumps to 67.6x – that's 4.6 standard deviations above the trend. To put this into perspective: such an event (assuming a normal distribution) should occur approximately once every ~43,000 years. When (not if) profits begin to normalize – and history shows that this always happens – the correction in valuations could be much more severe than the market is currently willing to accept.
Alphabet reported its second-quarter results and showed something the company hasn't seen since going public: FCF of -$5.9 billion. For the first time in over 20 years. What was recently considered a "bullish signal" (we are spending even more on AI) is now perceived by the market in a completely different way. If, previously, an increase in CAPEX was seen as a bet on a technological revolution, now it is perceived as a necessity to maintain the narrative at all costs.
Yields on long-term government bonds in developed countries are again at their highest levels, with US 10-year bonds at 4.65% and 30-year bonds hitting record highs of 5.15%... the market is starting to factor in a rate hike by the Federal Reserve in July. The yen has hit multi-year lows around 163 yen per dollar [after which, it seems, new interventions began]. And TACO is looming again...
China continues its 20-month streak of gold purchases: in June 2026, the People's Bank of China acquired another 15 metric tons. The total reserves now amount to 2347 tons. Analysts attribute this move to a shift away from the US dollar. In the first quarter of 2026, global central banks also increased their gold purchases by 17%. Traders are monitoring the potential for a rebound in gold prices and are tracking altcoins that are worth watching given the changing dynamics in the cryptocurrency market. Despite the recent decline in precious metal prices, China's strategic gold purchases indicate a continued interest in diversifying away from the US dollar, against the backdrop of ongoing geopolitical tensions.
Despite the rising price of oil - gold, and even the Bitcoin are raising. It's not about risk perception; the risks due to the renewed closure of the straits have only increased, and the consequences have been exacerbated. The issue is the amount of dollars in the global dollar system. Several interconnected processes have occurred during the period when oil prices were high.
- Countries/central banks that had reserves borrowed dollars from banks/central banks by pledging securities, in order to provide these funds to banks that were lending dollars to oil importers.
- Countries/central banks that did not have reserves borrowed dollars against other collateral and did the same thing - provided the money to banks.
- Countries/central banks that had swap lines with the Federal Reserve or the ability to borrow from the U.S. Treasury did the same.
- A certain number of central banks and even non-central banks sold gold or borrowed dollars against gold, and the buyers or creditors hedged, which put downward pressure on the price of gold.
And so on.
This resulted in more dollars in circulation (dollars were multiplied through credit), but they began to circulate in the commodity market - oil, petroleum products, LNG, fertilizers, and so on. As soon as the price of oil and other commodities fell, the dollars didn't disappear. The credit didn't disappear. But the dollars began to slowly flow back - into gold. But not into the stock market, because the AI hype is slowly fading, and it's not just that skepticism is accumulating, but rather that there is a shift towards a less optimistic outlook. This was further reinforced by the selling of stocks during the initial dollar shortage.
What does this tell us in general in the current situation? That the rising price of oil, if it exceeds previous average highs, will again create a dollar shortage in the system, and dollars will be created through credit. And when the war in the Strait of Hormuz, along with the Bab-el-Mandeb, ends again, the money will flow back, at least into gold. If the prices don't skyrocket, then we will simply see a sideways trend until the straits are reopened.
Let's talk about the Houthi attack on Saudi tankers in the Red Sea. Objectively, the Houthis didn't just attack a Saudi tanker. They attacked a backup route for the global oil system. When the Strait of Hormuz is blocked, Saudi Arabia can transport oil through the East-West pipeline from the east of the country to the port of Yanbu on the Red Sea. Its capacity reaches 7 million barrels per day, with approximately 5 million of that going to exports. This is Saudi Arabia's main safeguard against problems in the Persian Gulf. That's precisely what these so-called "Bedouins in sandals" are now targeting.
The market has reassessed the probability that there is no longer a safe backup route for oil. The physical deficit begins not when the last well is blown up. It begins when a shipowner doesn't want to send a tanker, an insurer asks for three times more, a bank increases the cost of financing the cargo, and the captain prefers to turn away to avoid trouble. It's not just oil that becomes more expensive. Freight, insurance, collateral, working capital, diesel, fertilizers, plastics, and all the logistics surrounding them become more expensive. The market is trading not only on what has already happened, but also on the price of the next attack. It doesn't take an aircraft carrier to close a strait. Sometimes, it's enough to change a single cell in a London insurer's Excel spreadsheet.
In 1973, the oil shock was created by state embargoes. In 2026, it could be created by two narrow straits, a few rockets, and the decision of an underwriter. lobalization has proven to be a very reliable system, but only as long as no one is shooting.
Finally, about the Fed. They are starting to realize that the key interest rate affects the economy not only through the textbook model – raise the rate, curb demand, defeat inflation, and receive a medal. A significant government debt creates an unpleasant situation. The higher the rate, the more expensive it is to service that debt. The budget pays more to bondholders, the Fed pays more to banks on reserves, the deficit widens, and even more new bonds have to be issued. As a result, the anti-inflationary tool simultaneously creates an additional stream of income and government spending.
This creates a paradox. A high rate slows down private lending, but accelerates the government's interest expenses. And at some point, the second effect may become comparable to the first. This leads to a possible scenario for a new Fed policy. The rate is lowered to reduce the cost of financing the economy and partially compensate for the contraction from the balance sheet reduction. At the same time, the Fed reduces its own asset portfolio, and banking regulations are adjusted to allow the private sector to absorb more Treasury bonds.
This is no longer the fantasy of conspiracy theorists fighting against the Fed's perceived stupidity. In March, Fed Governor Stephen Miran directly described this connection: a smaller balance sheet can be combined with a lower rate, and regulatory changes can make it easier for banks and dealers to buy Treasuries. Formally, everything looks almost perfect. The rate is lower, the Fed's balance sheet is shrinking, there is no direct QE, the market for government debt is getting buyers, and the rate cut can be presented not as a surrender to inflation, but as part of a more complex anti-inflationary structure.
So, the question will no longer be: what rate looks high enough. The question will be different: at what rate is the aggregate inflationary effect of the entire financial system minimized? This is currently a possible scenario, not a completed revolution. But if the Fed does move in this direction, it will be a significant departure from directly managing the economy with a single price lever. It may turn out that the rate sometimes needs to be lowered not because inflation has been defeated, but because the high rate itself has become part of the inflationary mechanism.
So, maybe we do not see it in day-by-day data and market doesn't show fast reaction on all these conclusions. But it is slowly boiling up and number of problems in global financial system are raising. This explains why Central Banks start buying gold not in 2022 but in 2008 right after the Subprime crisis. And this process is not interrupted, it is keep going now, migrating in other economy sphere because of unwise Fed dovish policy and uncontrolled QE and appearing in the ways that nobody has expected. It means that big but gently acting bullish factor for gold exists and it is very important and it will keep working until structural mismatches and deviations in economy will not be fixed either naturally through crisis or recession or manually via controlled inflationary spiral and devaluation.
