The hawkish Federal Reserve is hunting gold with energy inflation, causing the price of gold to nearly stagnate for the year! Anxiety over deficits continues to push Wall Street's gaze toward $5,000.

Recently, the spot price of gold surged to over three-month highs of $4,696.18 per ounce, driven by the U.S. Treasury's expansion of long-term bond buybacks, a continuous weakening of the dollar index, and disorderly expansion of the fiscal deficit amid a wave of sovereign currency devaluation trades. However, following Fed Chair Waller's hawkish remarks at the Jackson Hole Global Central Bank Symposium last Friday, gold prices have remained weak. Additionally, the subsequent escalation of the U.S.-Iran conflict has further subdued gold's performance. The short-term pricing chain of "Waller's hawkish stance + rising oil pricesinflation expectations heating upincreased rate hike probabilitiesrising real yields" has temporarily overshadowed gold's characteristic of serving as a geopolitical safe haven and its appeal in the context of dollar credit anxiety and fiscal deficit risk. As energy prices have surged, bolstering rate hike expectations and elevating global risk-free yields, non-yielding gold has faced dual pressures from opportunity costs and technical sell-offs. Waller's comments have reactivated rate hike trades, but the logic of long-term currency devaluation indicated by the fiscal deficit, dilution of dollar purchasing power, and central bank gold purchases has not been dismantled. The structural upward trajectory of gold prices still receives support from Wall Street, but future paths will likely shift from a unilateral bull market trajectory to a wide fluctuation driven by policies, oil prices, and yields on 10-year or longer-term government bonds. In his remarks at Jackson Hole, Waller emphasized that the U.S. Personal Consumption Expenditures Price Index (PCE) has increased by 3.7% over the past 12 months and 4.1% over the past six months, indicating that inflation remains significantly above the 2% target. The Fed's current "primary focus should be on prices," and if core inflation does not decrease at a sufficient pace, policymakers "still have work to do." This latest hawkish statement pushed the probability of a rate hike in September from 35.4% to 55.7%, and then further to 66%. On the day of Waller's speech, spot gold fell 3.19% and spot silver dropped 4.3%. The U.S. two-year and ten-year Treasury yields rose to 4.36% and 4.728%, respectively; the S&P 500 Index fell by 0.25%, and the NASDAQ Composite Index decreased by 0.52%. Crude oil also retreated slightly that day, but with the escalation of the U.S.-Iran conflict, Brent and U.S. crude oil prices surged 4.6% and 5.2% on Tuesday, closing at $94.65 and $90.22, respectively, further pushing global bond yields upward and causing the S&P 500 Index and NASDAQ Composite Index to decline by another 0.71% and 1.03%. By Tuesday, spot gold ultimately fell to $4,342.20, remaining below the 200-day moving average. With rising bond yields and oil prices applying pressure, gold has nearly given back all its gains for the year. Gold futures prices dropped for three consecutive trading days on Tuesday. As the conflict between the U.S. and Iran escalated once more, global yields on bonds with ten-year maturities and above soared. This, combined with stronger market inflation expectations, raised the likelihood of interest rates increasing in the financial markets in the coming months. According to statistics from the London Stock Exchange Group (LSEG), the U.S. ten-year Treasury yield recently surged to 4.798%, while the two-year yield climbed to 4.369%, both reaching their highest levels since January 2025, reflecting a growing market bet that the Fed will raise rates in September. The yield on longer-term U.S. 30-year Treasuries has remained above 5% for an extended period, marking the highest level since 2006. The rise in oil prices has sparked concerns in the market regarding inflation and its impact on Fed policy, especially after Fed Chair Waller expressed worries about inflation last week. According to the FedWatch tool from the Chicago Mercantile Exchange, futures traders currently see a 66% probability of a rate hike this month. Jim Wyckoff, a senior analyst at the American Gold Exchange, stated in a report: We are seeing some technical selling pressure Global bond yields are at levels not seen in years. Therefore, all these factors are collectively suppressing the gold market. He added that gold has consistently fallen below the 200-day moving average, an important technical signal. Wyckoff remarked: For now, the path of least resistance for the gold market may be a sideways consolidation or slightly weak trajectory the same applies to silver. On Tuesday, the near-month gold futures for September at the New York Mercantile Exchange plummeted 1.9% to settle at $4,348.00 per ounce, marking the lowest settlement price since August 7; meanwhile, near-month silver futures for September dropped 2.4% to close at $64.618 per ounce, the lowest close since August 18. So far this year, spot gold prices have only increased by 0.5%, while silver has decreased by 7.8%. Missiles fly over Jordan, tankers stranded in the strait: the U.S.-Iran conflict rewrites global risk premiums within three days of two battles. The U.S.-Iran conflict has escalated from weekend events involving U.S. airstrikes on Al-Raqa IslandIranian attacks on U.S. military bases in Jordan to a second round of direct firefights within three days. On Tuesday, the U.S. military launched intensive strikes against the Iranian Revolutionary Guard's air defense, radar, naval combat, mine-laying, and communication facilities. Iranian state media simultaneously reported explosions at various locations, including Ahvaz, Ghirouft Airport, Chabahar, Abbas Port, Asaluyeh Energy Hub, and near Qeshm Island; in response, Iran launched ballistic missiles and drones targeting U.S. facilities in Jordan and declared attacks on U.S. military targets in Bahrain. Jordan confirmed that 13 ballistic missiles entered its airspace, of which 10 were intercepted, and 3 fell in remote areas; initial U.S. reports indicated no casualties, hence Irans assertion of numerous U.S. casualties has yet to be independently verified. Trump established an escalatory deterrence with phrases like "the final strike is brewing," while Iran responded with locking the Strait of Hormuz, suggesting both sides are competing for escalation dominance rather than genuinely approaching a ceasefire. The Strait of Hormuz, crucial for global energy transportation, has now become a real combat center: two supertankers, each carrying about 2 million barrels of Saudi crude oil, were struck by unidentified flying objects in proximity to Oman within minutes. The U.S. claims to have cleared mines from the main shipping lanes, but this does not imply that commercial shipping has returned to normal, as risks to vessels, escort capabilities, war insurance, and crew willingness are still significant constraints on navigation. Meanwhile, U.S. maritime blockades have left Iran unable to substantially export crude oil through the strait for nearly seven weeks. There is currently no evidence that the Mandab Strait has been fully closed, but the Houthis previously announced a blockade of Saudi shipping and attacked tankers in August, leading to fatalities, indicating it is a "second maritime battlefield" that Iran can activate. If both the Strait of Hormuz and the Mandab Strait are obstructed simultaneously, the former would limit the transportation of crude oil, liquefied natural gas, fertilizers, and petrochemical products from the Gulf, while the latter would sever the Red Sea-Suez Canal route, forcing vessels to reroute around the Cape of Good Hope. This double gate impact would non-linearly drive up oil prices, diesel crack spreads, shipping costs, and insurance premiums, intensifying global re-inflation and upward pressure on bond yields. The U.S. Treasury Secretary's so-called detour plan within two years is a long-term derisking project that cannot replace the currently limited pipeline capacity and cannot solve transportation issues regarding liquefied natural gas and non-energy commodities. Can a hawkish Fed suppress a long-term bull market in gold? Wall Street looks again to the $5,000 threshold. According to the latest public forecasts, Citigroup has raised its three-month target price for gold from $4,500 to $4,800 and maintained a target of $5,000 for the next six to twelve months. Goldman Sachs expects prices to rise to $4,900 by the end of 2026, predicting an average of 50 tons of gold purchased by central banks monthly, significantly higher than the pre-2022 average of 17 tons per month. Deutsche Bank takes a more cautious stance, forecasting average prices of $4,300 and $4,800 for the third and fourth quarters, respectively, while warning that if the Fed continues to hike rates, gold prices might dip to $3,800. Morgan Stanley, on the other hand, believes its $4,450 target for the fourth quarter has already been reached and sees a path towards crossing $5,000 in 2027. The true consensus among Wall Street analysts is not that gold will only rise in the short term without corrections, but that high real interest rates and a hawkish Fed will create significant pullbacks. However, the ongoing and disorderly expansion of the U.S. fiscal deficit, long-term dilution of dollar purchasing power, diversification of central bank reserves, and the serious under-allocation of gold assets in private investment portfolios continue to form the four most critical bullish pillars supporting a structural bull market in gold over the medium to long term. Ray Dalio, founder of Bridgewater Associates, recently renewed his warnings about the U.S. fiscal situation. He believes that U.S. Treasury Secretary Yellen's announcement this week of extending long-term bond buybacks, combined with the surge in long-term U.S. Treasury yields and Japan's reduction of its exposure to the U.S. bond market, may signal that U.S. fiscal policy is approaching a crucial turning point. If the debt issue is not addressed promptly, the U.S. may face an even more severe debt crisis in the coming years. Dalio advises investors to increase their holdings of gold. Bank of Americas exclusive "Bull & Bear Indicator" has risen to 9.5, positioning it in the sell range. Thus, the Bank of America strategy team, led by Michael Hartnett, who is known as Wall Streets most accurate strategist, recommends using gold to hedge against dollar credit dilution, going long on commodities and natural resources required for AI infrastructure, while shorting AI bonds and being wary of highly leveraged ultra-large cloud companies, private credit, and cyclical financial assets. The niche market paradox of gold is the most explosive aspect of this long-term bullish logic: while the total value of gold above ground exceeds $30 trillion and the daily trading volume also surpasses $300 billion, a large portion of this supply belongs to central bank reserves, jewelry, and long-term holdings. The substantial transactions in the London market also primarily arise from repeated turnovers among banks, market makers, and algorithmic trading, meaning the truly liquid portion capable of absorbing fresh long-term funds is much smaller than the nominal market value. According to Goldman Sachs, gold exchange-traded funds (ETFs) accounted for only 0.17% of U.S. private financial portfolios by December last year; in strict terms, every increment of 0.01 percentage points, or 1 basis point, in gold asset allocation by institutions or retail investors corresponds to an estimated gold price increase of about 1.4%. Another analysis from banking giant JPMorgan Chase for May 2025 indicates that foreign investors hold about $57 trillion in U.S. assets. If 0.5% of that, approximately $273.6 billion, shifts to gold over four yearsabout $70 billion per yearit corresponds to an annualized increase of approximately 18%, potentially pushing gold prices to $6,000 by early 2029. These Wall Street expected figures signify extremely high capital flow elasticities. The demand structure provides practical support for this revaluation, rather than just a theoretical hypothesis: global gold ETFs saw a net inflow of approximately $3 billion in July, increasing their holdings by 23 tons, bringing total holdings to 4,068 tons, with assets under management reaching $530 billion. The net increase in gold purchases by central banks also rebounded significantly from 57 tons in the first quarter of 2026 to 289 tons in the second quarter, indicating that official sectors possess clear counter-cyclical absorption capacity when prices fall.