Gold drops to $4,052 as oil spike and Fed bets crush XAU/USD

COMEX gold extended its losing streak to a third session Wednesday, dropping 1.31% to $4,052.40 per ounce at 11:07 GMT, as a surge in crude oil above $74 a barrel and rising Federal Reserve rate hike expectations overwhelmed any safe-haven bid from escalating US-Iran hostilities.

"The reality is setting in that the Fed is still very much focused on reigning in inflation — so higher for longer still seems the most likely Fed path," Peter Grant, vice president and senior metals strategist at Zaner Metals, said.

WTI crude jumped 6.45% to $74.93 a barrel and Brent rose 6.18% to $78.73 after President Trump declared the Iran nuclear deal "over" and the US launched strikes following attacks on three commercial vessels in the Strait of Hormuz. The 10-year Treasury yield climbed more than 5 basis points to 4.5812%, the 2-year added 5 basis points to 4.2182%, and the 30-year pushed above 5% to 5.0752%. The dollar index hit 101.18, its highest level since July 2. September rate hike odds rose to 68% from 62% the prior day, according to the CME FedWatch Tool.

Gold is being squeezed from four directions simultaneously — elevated crude keeping inflation expectations elevated, yields climbing across the curve, a strengthening dollar, and rising rate hike probabilities — with none showing signs of reversing. The Fed minutes from the June 16-17 meeting, where the committee held rates at 3.50% to 3.75%, are due this afternoon and represent the next catalyst. If the minutes read hawkish, September hike odds could climb further, removing another layer of support for XAU/USD.

The $4,041 Support Line

Gold is testing a short-term retracement zone of $4,072.40 to $4,041.65, formed from the $3,942.10 to $4,202.71 range. A sustained hold above $4,041.65 could build a secondary higher bottom and set up a retest of resistance at $4,162.36 to $4,214.34. A break below $4,041.65 opens the path to the main bottom at $3,942.10, with the next bearish trigger at $3,886.46 — a level that, if breached, could accelerate the selloff.

China's central bank maintained its gold buying streak for a 20th straight month, with reserves rising to 75.44 million fine troy ounces from 74.96 million in May, according to official data. Hong Kong also launched a central clearing system for gold and revived gold futures trading Tuesday as it seeks to become a regional bullion hub. These demand-side developments, however, have done little to offset the macro headwinds driving the current selloff.

This article is for informational purposes only and does not constitute investment advice.