The Logic of Gold: What Changes and What Stays the Same!

Before observing this change, I recalled some misconceptions discussed earlier in my article, 'A Counterintuitive Truth About Futures!'—specifically, the error of attempting to time bottoms based solely on valuation. After that article was published, a friend shared his reflections with me via WeChat—and I thought his insight was spot-on: Within a given time horizon, if no new catalyst emerges to alter the prevailing trend, that trend will only strengthen; weak assets won’t suddenly become strong without cause. I also remembered what Retail Investor Yi once said: Judging whether a stock is fundamentally sound isn’t difficult; nor is judging whether it’s cheap. What *is* difficult—and nearly impossible to gauge accurately—is whether a cheap stock will get even cheaper, or whether an already-cheap stock will become cheaper still. Thus, from a valuation perspective—whether for equities or futures—we cannot resolve one critical question: After reaching low valuations or becoming 'cheap,' will prices fall further? Even Buffett’s bargain purchases have plunged significantly after he bought them. Commodities futures are even more complex: they face expiration constraints, roll yield (contango/backwardation) effects, and in extreme cases—even relentless short squeezes forcing longs all the way to contract expiry. Low valuation is *not* a catalyst for price appreciation. What drives rallies is invariably the emergence of a *new catalyst* that shifts the prior trend. Therefore, we must diligently track and assess both the nature and sustainability of such catalysts. Gold’s recent decline unfolded in two phases. The first phase reflected a necessary correction following a substantial prior rally—initially achieved through sharp price declines, then transitioning toward consolidation at lower levels to digest the gains over time. The second phase involved a fundamental shift in market narrative: rising expectations of Fed rate hikes—especially after the U.S.-Iran conflict. The clearest chain of causality was: War → Oil Price Surge → Rising U.S. Treasury Yields + Stronger Dollar → Tighter Real Interest Rates → Gold Decline. Following the oil spike, robust labor-market data reinforced the narrative of future tightening. The CME FedWatch Tool initially priced in ~25 bps hikes each in September and March next year. At one point, the probability of a September hike (25 or 50 bps) even exceeded 80%. As FedWatch probabilities climbed, gold and other precious metals faced mounting downward pressure. These were the two drivers behind gold’s prior decline. Recently, however, several developments have disrupted this narrative: First, Trump announced a deal would be reached and unveiled within 48 hours—triggering a sharp oil price drop and gold rebound. Second, the ADP 'mini-nonfarm' payroll report missed expectations—gold rallied further. Third, the official nonfarm payrolls print came in at -23,000 (versus +80,000 expected), while May and June figures were collectively revised downward by 103,000—pushing gold higher still. What unites these events is their collective erosion of rate-hike expectations—shifting market positioning toward potential rate cuts. As the hawkish narrative weakens, the dollar and real yields soften—releasing gold’s core headwind. Now, the probability of a 50-bps September hike has collapsed from 26.64% to 0%; the chance of a 25-bps hike has dropped from 55.34% to 45.9%; and the likelihood of holding rates steady has surged from 18.02% to 54.1%.

Gold Has Fallen This Far—Stop Asking 'When to Bottom-Fish'!

These days, everyone’s eyes are fixed on the Federal Reserve. The September FOMC meeting is just around the corner. And this time, market expectations are shifting at lightning speed. Just days ago, the debate centered on 'Will the Fed hike?' Now, markets are increasingly treating a rate increase as the baseline scenario. The latest market pricing shows a near-90% probability of a September hike. Goldman Sachs and JPMorgan have both revised their calls—now forecasting a 25-bps hike this month. Unsurprisingly, gold is under pressure. Today, spot gold weakened further—slipping briefly to around $4,318. But what’s truly worth discussing now isn’t 'Will the Fed hike or not?' Rather, it’s a question many retail traders struggle to grasp: Why did gold start falling *before* the news even materialized? The answer lies plainly in the price chart. Many gold traders’ biggest mistake is waiting too long for news. They wait for the ADP report. They wait for the CPI release. They wait for Fed speeches. They wait for the FOMC decision. Then—only after the news breaks—do they decide whether to buy or sell. It sounds logical—but markets don’t operate that way. By the time everyone knows, the optimal entry point is usually long gone. This episode is the textbook example. After U.S. inflation data surprised to the upside, rate-hike expectations surged—and gold began adjusting *immediately*. Then geopolitical tensions pushed oil prices higher, adding further inflationary pressure—and market bets on Fed tightening intensified, weighing further on gold. So if you’re now asking: 'Is the Fed’s hike the reason gold fell?' Yes—it certainly is. But that’s merely an *explanation*. Traders focused on execution care more about one thing: Did price action telegraph the answer *in advance*? That’s the essence of technical analysis. The most useless way to interpret technical analysis is as fortune-telling: 'Golden cross? So it’ll rise.' 'Oversold? So it’ll bounce.' 'Indicator divergence? So the bottom is here.' Real technical analysis isn’t that complicated. You need only watch *one thing*: Has the trend changed? In an uptrend: higher highs *and* higher lows. In a downtrend: lower highs *and* lower lows. That’s it. Too many traders overcomplicate it—drawing dozens of lines, layering on a dozen indicators—until they can’t even see the basic price structure. So right now, what matters most for gold isn’t who’s shouting 'The bottom is in!' Rather, it’s this: Has this leg down produced any *genuine* signs of stabilization? If gold rallies—but still fails to clear its prior swing high;

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Gold prices declined as oil supply disruptions from Saudi Arabia's pipeline closure fueled inflation concerns, increasing the probability of an imminent Federal Reserve interest rate hike.

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