Hua Seng HengPrivate± Mixed
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Gold Builds Base Above $4,200, Poised for a Second Monthly Gain
CommodityDigital Finance
Gold prices in July delivered a positive return of 0.85%, the first gain in five months, after previously being heavily sold off and posting negative returns for four consecutive months. March and June saw steep negative returns of 11.5% and 11.7% respectively. The stabilization in gold prices reflects reduced selling pressure as markets eased concerns over accelerating inflation and the need for the Fed to aggressively raise interest rates, given that June inflation declined, particularly CPI and PPI, which slowed more than expected. Additionally, June nonfarm payrolls were weak, adding only 57,000 jobs. During the four-month Iran conflict, fund flows out of gold ETFs reached as high as 129.1 tonnes, with outflows from the SPDR fund totaling 96.25 tonnes. However, in July, the SPDR fund saw net purchases of 1.9 tonnes of gold, a very small figure but an early positive signal. On the yen intervention front, the U.S. Treasury and Japan jointly bought yen on July 31 to support the sharply weakening currency, after it fell to a nearly 40-year low near 164 yen per dollar. This marked the first joint exchange-rate intervention in 15 years and one of the most unconventional operations in financial market history. The anomaly was not just the yen support itself, but the U.S. signaling in advance that it might intervene, using euros instead of dollars to buy yen, and even the leaked image of a note reading 'To Do: Buy Japanese Yen $5-10 bil.' from U.S. Treasury Secretary Scott Bessent. Moreover, the amount of only $5-10 billion is very small compared to estimates that Japan spent over $36 billion in the joint intervention on July 31. There are three reasons the U.S. had to help Japan prop up the yen: 1) To prevent Japan, the largest foreign creditor of the U.S., from dumping U.S. Treasuries to raise funds for yen buying, which could push U.S. bond yields higher, after the 30-year U.S. bond yield rose to 5.28%, the highest since 2007 or in 19 years, driving up U.S. mortgage rates and government borrowing costs. Treasury Secretary Scott Bessent had previously stressed the importance of not letting bond yields surge too high. 2) To support the Trump administration's policy of wanting a weaker dollar to boost U.S. export competitiveness and reduce the trade deficit. 3) To help reduce the risk that yen volatility and turmoil in the Japanese bond market could spill over into the global financial system, triggering a worldwide bond market crisis. Although the intervention helped the yen strengthen in the short term, gold appeared to benefit from the yen intervention, which weakened the dollar against the yen, while long-dated U.S. bond yields declined somewhat. However, fundamentals remain unchanged, especially the wide interest-rate differential between the U.S. and Japan, casting doubt on whether the yen intervention will be sustainable and achieve the desired outcomes for the U.S. and Japan. Nonetheless, Japan signaling possible future yen interventions, and the joint U.S.-Japan intervention having a greater psychological impact than Japan acting alone, helps curb speculative activity in the currency market more than just the money spent. On the technical front, gold in July attempted to build a base and moved sideways in a range of $3,960 to $4,200. Hua Seng Heng views this as accumulation for a further move higher. Gold broke above the upper boundary at $4,200 on August 5, generating a short-term buy signal, and technically gold has upward momentum with resistance at $4,400, the 100-day SMA, and key resistance at $4,500, the 200-day SMA. If it breaks above $4,500, gold could rally strongly and resume a long-term uptrend. The lower bound is expected to shift higher, with support seen at $4,200 and $4,100. Thai gold has support at 66,000 baht and 65,000 baht, and resistance at 68,000 baht and 69,000 baht. Short-term supportive factors for gold include expectations that Iran will reopen the Strait of Hormuz and that the U.S. and Iran will pause fighting for peace talks. Brent crude oil prices fell 20% after touching $100 last month, moving markets out of high-inflation fear mode. Even though July CPI and PPI due mid-month are expected to accelerate, markets do not believe severe supply shortages will occur. Factors expected to keep oil prices from surging include China, the world's largest crude importer, slashing imports to near 10-year lows, reflecting slowing oil consumption from a weak economy, rising electric vehicle adoption, and refineries cutting refined product exports. The U.S. is producing oil at record levels, with capacity rising to 13.93 million barrels per day, alongside releases from the Strategic Petroleum Reserve and coordination with other consumer nations to add supply totaling around 400 million barrels. Trump's unpredictability also deters speculators, as he sends mixed signals—sometimes talking negotiations, sometimes escalating attacks, sometimes indicating Hormuz transit can resume—leading many funds to avoid building large long oil positions, resulting in less speculative pressure than expected during crises. Factors to watch include the prolonged U.S.-Iran peace talks and the unresolved Iran conflict, as well as the issue of Strait of Hormuz management, which the U.S. opposes having Iran and Oman administer.