Highlights:

• Gold futures briefly surpassed $3,700 per ounce, fueled by rate-cut expectations and a weakening dollar.

• Investors remain divided over whether the rally is sustainable, with analysts warning of overbought conditions.

• Central bank buying and structural shifts in global reserves continue to underpin long-term demand.

Gold prices are testing uncharted territory, with futures climbing past $3,700 an ounce on Tuesday before trimming gains, while spot prices hovered above $3,650. The rally comes as Federal Reserve policy expectations and a retreating U.S. dollar reshape investor positioning across global markets.

Fed Easing Bets Keep Momentum Alive

Investors have remained steadfast in their belief that the Federal Reserve will cut rates by 25 basis points in September, following revised jobs data that reinforced concerns about a slowing labor market. With unemployment ticking higher and payroll growth cooling, the narrative of an imminent easing cycle has gained traction.

Market analysts suggest that this week’s inflation reading will be pivotal in confirming the trend. “If inflation comes in softer, the easing narrative will be reinforced,” said Linh Tran of XS.com, emphasizing that lower yields would weigh further on the dollar, amplifying gold’s appeal. Conversely, hotter-than-expected inflation could temper rate-cut bets, pushing Treasury yields higher and prompting a short-term correction in bullion prices.

Dollar Weakness as a Tailwind

The U.S. dollar index has shed more than 9% year-to-date, sliding below 98, marking one of its steepest annual declines in over a decade. Historically, a weaker dollar has correlated strongly with gold rallies, as it reduces the cost of the metal for overseas buyers.

The decline reflects not only Fed policy expectations but also shifting capital flows, as investors diversify away from U.S. assets amid global uncertainty. The dollar’s slide has created a fertile backdrop for gold’s extraordinary 40% year-to-date gain, a performance that dwarfs the S&P 500’s 10% rise.

Market Overheating Concerns

Despite the bullish momentum, questions are mounting over whether gold has moved too far, too fast. The metal has gained 7% in just the past month, pushing technical indicators into overbought territory.

“Traders are becoming more cautious about adding fresh long positions,” noted Dilin Wu, research strategist at Pepperstone. “This suggests the likelihood of a short-term pullback or a period of consolidation before the market gathers strength again.” Such dynamics highlight the psychological tug-of-war between fear of missing out and the instinct to lock in profits after outsized gains.

Central Bank Buying Reshapes the Landscape

Beneath the daily price swings, structural drivers remain firmly supportive. Central banks have increased their gold holdings for 14 consecutive quarters, a streak dating back to 2020. China has led the charge, adding to reserves for 10 straight months, underscoring a strategic move by emerging economies to reduce reliance on U.S. Treasurys.

For the first time since 1996, global central bank gold reserves now exceed foreign holdings of U.S. government debt. This milestone signals not just diversification but also a reassessment of geopolitical risk, particularly as tensions between Washington and Beijing reshape global trade and finance.

Looking Ahead

Goldman Sachs has labeled gold its “highest conviction” commodities trade, outlining a bull case for prices to approach $5,000 by the end of 2026. Whether that trajectory plays out will hinge on the Fed’s policy path, the durability of dollar weakness, and the scale of official sector buying.

For investors in both Israel and the U.S., the challenge is balancing near-term volatility with the metal’s evolving role as both a hedge against inflation and a geopolitical safe haven. As central banks continue to rewrite the rules of reserve management, gold’s rally may prove more than just a cyclical story—it could mark the start of a structural revaluation.