- Gold and silver rebounded after successfully resisting another wave of selling pressure. Gold found support below $4,000, while silver attracted buyers below $57. Lower oil prices, a less hawkish-than-feared Federal Reserve, intervention in the yen market and weak US labour-market data then helped trigger a strong recovery.
- Demand is becoming more diversified again. Central banks and Asian investors continue to provide structural support, while Western investors are beginning to return to exchange-traded funds.
- The macroeconomic environment has become more supportive, but remains fragile. A weaker dollar and reduced expectations of further Fed tightening are helping precious metals, but renewed inflationary pressure, another surge in oil prices or stronger US data could quickly revive expectations for higher interest rates.
- Gold has successfully defended itself against further declines, but it has not yet confirmed a return to a sustained bull market. Support around $4,200 is becoming increasingly important, while the key upside test remains the 200-day moving average, currently just below $4,500.
As Ole Hansen, Head of Commodity Strategy at Saxo Bank, points out, the most important development in precious metals was not the scale of last week’s rebound, but the sell-off that failed to materialise beforehand.
Gold repeatedly resisted attempts to push it decisively below $4,000, while silver consistently found buyers below $57.
That resilience persisted despite several factors that weighed heavily on the sector during the second quarter: elevated bond yields, renewed concerns about US interest-rate hikes as inflation accelerated and fuel costs rose sharply, a stronger dollar and weak investment demand from Western asset managers.
Gold had fallen sharply from its January record above $5,500, while its second-quarter losses were the largest since 2013.
Yet the fact that sellers failed to establish a sustained break below $4,000 increasingly suggested that underlying demand remained strong enough to absorb supply from investors more sensitive to interest-rate expectations.
That resilience translated into a 7% rebound in gold last week, its strongest weekly gain since January, while silver moved back above $65.
A further catalyst came from Friday’s weak US labour-market report, which reduced expectations of another near-term Federal Reserve rate hike and contributed to a weaker dollar.
Fed, Yen Intervention and Labour Data Shift Market Sentiment
The first major catalyst came from the Federal Open Market Committee meeting at the end of July.
Its message was dovish mainly relative to increasingly hawkish market expectations rather than dovish in absolute terms.
As higher energy prices fuelled inflation concerns, markets had begun assigning a meaningful probability to another rate increase.
The Fed ultimately left rates unchanged, although three regional Federal Reserve presidents supported tighter policy.
That shows inflation concerns have not disappeared.
Nevertheless, the modest decline in rate-hike expectations weakened the dollar’s momentum and provided initial support for gold and silver.
The next major development was an unusually coordinated intervention by the United States and Japan after USD/JPY approached its highest level in roughly four decades, near 164.
Japanese authorities intervened first to support the yen, after which the US Treasury joined the effort through the Federal Reserve Bank of New York.
The coordinated action temporarily pushed USD/JPY back toward 155, increasing pressure on the dollar and providing another bullish impulse for precious metals.
Part of that move has since reversed, with USD/JPY returning toward 160.
That illustrates how difficult it is to reverse a currency trend through intervention alone when interest-rate differentials remain wide.
Taken together, however, the recent sequence of events has been favourable for precious metals: the Fed was less hawkish than feared, the dollar weakened, authorities intervened in the yen market, oil prices fell and weaker US employment data followed.
Western Investors Are Starting to Return
From a medium-term perspective, the first signs of renewed Western investment demand may be even more important.
During much of the correction, central banks and Asian investors continued buying gold, while many Western asset managers remained on the sell side, discouraged by rising bond yields and the prospect of higher financing costs.
That created an unusual divergence between strong physical demand and official-sector purchases on one side and weak interest from investors traditionally most sensitive to US monetary policy on the other.
That gap may now be starting to narrow.
The World Gold Council reported that physically backed global gold ETFs recorded net inflows of $3 billion in July, ending two consecutive months of outflows.
Total holdings increased by 23 tonnes to 4,068 tonnes.
European funds accounted for most of the buying, while inflows in North America remained limited.
Western investors are therefore beginning to return, but it is too early to describe the move as a broad shift in positioning in favour of gold.
North America remains the only major region to have recorded ETF outflows during the first half of the year.
Central Banks and Asia Remain the Foundation of Demand
While Western investor interest has fluctuated with changes in interest-rate expectations, demand from central banks and Asian buyers has remained an important source of underlying support.
The World Gold Council reported a clear rebound in official-sector purchases during the second quarter after an exceptionally weak start to the year.
Although central-bank buying in the first half remained below the unusually strong pace seen in recent years, the underlying motivation to diversify reserves appears unchanged.
That matters because the experience of 2022 and 2023 showed that central-bank and Asian demand can alter gold’s traditional relationship with Western financial conditions.
Aggressive monetary tightening and rising real yields did not trigger the deep and prolonged correction many Western investors had expected.
One reason was the repeated emergence of physical and official-sector demand whenever prices fell.
A similar mechanism helped establish the lower boundary of gold’s recent correction.
The key question now is what happens if this structural demand is joined by a sustained return of capital from Western portfolios.
Such a combination would create a far stronger demand environment than the one that has so far merely prevented gold from falling further.
Silver Joins the Rebound
Silver has also participated in the recovery and, as is often the case because of its lower liquidity, has moved somewhat faster.
Its outlook, however, differs from gold in several important respects.
Silver continues to benefit from its monetary characteristics and typically amplifies gold’s moves when investment demand strengthens.
At the same time, it has substantial industrial exposure, making its outlook more sensitive to the condition of the global economy.
The Silver Institute expects the market to record a sixth consecutive structural deficit in 2026, while investment demand is expected to remain strong.
Industrial consumption, however, is forecast to decline by around 2%, partly because manufacturers continue reducing the amount of silver used in production and replacing it with alternative materials in photovoltaic applications.
Silver may therefore offer greater upside momentum if the precious-metals rally broadens, but it also remains more vulnerable to declines if weaker US data develops into a more pronounced slowdown in global growth.
What Could Still Go Wrong?
Despite the more favourable environment, several risk factors argue against an unambiguously bullish stance at this stage.
The most obvious remains inflation.
The Fed’s July meeting reduced immediate fears of further monetary tightening, but three policymakers still supported higher rates.
A renewed acceleration in inflation could quickly revive expectations of another rate increase, pushing US Treasury yields higher and strengthening the dollar.
That would once again reduce demand for gold among interest-rate-sensitive investors.
Oil prices, and fuel prices in particular, remain especially important.
Their decline helped support last week’s precious-metals rebound, but the renewed increase following fading hopes for a US-Iran agreement is a reminder that the energy shock has not disappeared.
A sustained rise in oil prices could revive inflation concerns and complicate the Fed’s policy decisions.
There is also no guarantee that recent ETF inflows mark the beginning of a lasting reallocation.
The improvement in July is encouraging, but participation from North American investors remains limited.
Finally, stronger-than-expected US economic data could reverse some of the recent moves in yields, the dollar and interest-rate expectations.
Markets have moved quickly away from the scenario of imminent monetary tightening, making precious metals increasingly sensitive to upcoming inflation and activity data.
Gold Faces Its Next Major Technical Test
From a technical perspective, after finding support below $4,000, gold has now broken through its most recent resistance level.
The area around $4,200, which previously acted as resistance, is now functioning as support.
A much more important test, however, lies near $4,500, where the declining 200-day moving average is currently located.
Slightly above that level, around $4,585, lies the 38.2% Fibonacci retracement of the January-to-June decline.
A sustained break above this zone would significantly improve the technical picture and could open the way toward the 50% retracement near $4,690, followed by the 61.8% level around $4,860.
By contrast, rejection near $4,500 — or before that level is even reached — would suggest that the consolidation phase has not yet ended.
In that scenario, market attention could shift back toward the $4,000-$3,960 support zone.
For now, the outlook for precious metals is showing signs of improvement.
The market continues to benefit from structural demand that prevented a deeper correction, while the macroeconomic environment has become more supportive and Western investors are beginning to show early signs of returning.
That is a favourable combination, but it does not yet confirm the start of another sustained bullish wave.
Gold has already shown the levels at which buyers are willing to defend the market.
The next test will reveal whether they have enough strength to break the sequence of lower highs.
