Gold (XAUUSD) slides as oil soars to $100!



Gold's gains this week have now been shaved down to less than 1%.

Brent oil's resurgence back to the triple-digit handle ($100/bbl) has injected another dose of inflation fears across global markets, prompting the precious metal to unwind gains from earlier in the week.

Still, earlier this week, XAUUSD+ did respect our price target set in our previous edition of this weekly Gold report.

Last Friday, July 17th: we highlighted the $4130 upside boundary, as per Bloomberg model's then-forecasts for this week (July 17-24)

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Why is gold tumbling at the sight of US$100 Brent oil?



First, note that the US central bank's primary tool for combatting inflation is to raise interest rates.

• As borrowing costs rise, businesses and households need to use more money to service their debt.

• The extra money needed for debt servicing also means less money available for hiring or spending.

• Should this "demand destruction" ensue (fewer people with jobs = less money for spending in the economy), then businesses are discouraged from raising their prices i.e. slows inflation down.

Second, note that gold is a zero-yielding asset, which means investors do not get paid for holding on to gold.

• As interest rates go up, investors may hunt for yield in other assets.

• For example, yields on 2-year, 5-year, and 10-year US Treasuries this week reached their highest levels since Q1 2025.

• To fund their purchases of yield-bearing assets, investors then sell off their gold i.e. gold prices fall.

TLDR:

Higher oil prices --> potentially faster inflation --> Fed has to raise interest rates --> gold goes down.



July 27-31: Where to next for Gold?

Beyond the ongoing Middle East conflict, there's yet another pivotal test for gold traders coming soon:

The Fed rate decision, and Fed Chair Kevin Warsh's press conference, could determine whether or not gold can stay above $4k.

At the time of writing, markets fully expect the Fed to raise its benchmark rates by 25-basis points in September, with a 71% chance of a second Fed rate hike before end-2026.

^{Reminder: As explained above, gold tends to fall at the thought of US interest rates rising.}



POTENTIAL SCENARIOS

• UPSIDE: Gold could see a relief rally back toward its 50-day simple moving average (SMA) if Fed officials surprisingly signal their willingness to look past any potential burst of inflation, given oil's recent resurgence.

• DOWNSIDE: Gold could sink below $4k if the Fed presses home its "hawkish" message once again, stating their intent to raise US interest rates.



Over the coming week (July 24-31):

Bloomberg's model forecasts a 73% chance that Gold will trade between $3925 - $4176.



Looking further out, noting that gold has recently hit our downside targets across multiple weeks, we re-iterate:

Should the $3900-$4000 region fail to hold, last year's price action suggests little friction for further downside till the $3500-$3600 region for spot gold.





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