[Bearish for Precious Metals]
The US Fed held rates but internal divisions intensified, and the hawkish stance remains firm.
On July 30, the Fed announced it kept the federal funds rate unchanged at 3.50%-3.75%, marking the fifth consecutive pause in rate hikes. However, the vote was 9:3, with three regional Fed presidents voting for a rate hike—the first time since 2016 that three dissenting votes were cast in unison, highlighting growing hawkish strength within. Fed Chairman Warsh reiterated at the press conference the unwavering commitment to the 2% inflation target and emphasized that if inflation worsens, decisive action will be taken. Market expectations for a September rate hike heated up, extending the duration of high interest rates and continuing to weigh on precious metal valuations.
US Treasury yields hit multi-year highs, and elevated real interest rates raised holding costs.
Driven by the Fed's hawkish stance and fiscal supply pressures, the 10-year Treasury yield stayed high above 4.6%, while the 30-year yield briefly breached 5.2%, a new high since 2007. The opportunity cost of holding non-interest-bearing precious metals remains elevated, suppressing their appeal for capital.
The US dollar index continued to consolidate at highs, while the oil price rebound reinforced the inflation-rate hike linkage.
The dollar index consolidated at highs this week in the 101-101.5 range. Although it pulled back slightly after the Fed decision, the overall strength remains intact, directly pressuring precious metals priced in dollars. Meanwhile, escalating Middle East conflicts drove a sharp rebound in international oil prices, with Brent crude returning above $90/barrel. Rising energy prices exacerbated the risk of secondary inflation, in turn reinforcing the logic for the Fed to keep rates high and potentially hike further.
Labour market resilience exceeded expectations, supporting prolonged high interest rates.
US initial jobless claims for the week ending July 18 fell to 187,000, the lowest since 1969, nearly a 50-year low, showing that the labour market remains quite resilient. Strong employment data reduced the likelihood of Fed rate cuts while providing fundamental support for further rate hikes. The period of real rates staying high was further extended, continuing to suppress the valuation of non-yielding precious metals.
[Bullish for Precious Metals]
With the US Fed's decision settled, negative factors were fully priced in, driving a sentiment recovery.
The outcome of the US Fed maintaining rates unchanged was already fully priced in by the market. Although hawkish signals were sent, no rate hike occurred, leading to a phased release of suppressed bullish sentiment, which drove a slight rebound in precious metals futures.
Equity market volatility intensified, with hedging demand rising marginally.
This week, US stocks came under increased pullback pressure, with the Nasdaq-100 Index entering a technical correction zone, as tech stocks' earnings expectations and high valuations were under pressure in a high interest rate environment. The rise in equity market volatility drove some funds to increase gold allocations as a risk hedge, providing supplementary support for short-term buying.
Global trade frictions fully escalated, with policy uncertainty boosting hedging demand.
On July 24, the US officially imposed an additional 10%-12.5% tariff on 60 global trading partners, covering over 99% of total US trade, using Section 301 to replace previous emergency tariffs ruled unconstitutional by the Supreme Court, significantly enhancing legal compliance. Of these, 14 economies were subject to a 10% rate and 46 to a 12.5% rate, with only a few categories such as energy and natural gas exempt. Trade barriers elevated the risk of a global recession, and policy uncertainty drove funds to seek hedging in non-sovereign credit assets like gold, aligning with geopolitical hedging.
China's gold ETFs continued to see net inflows, with physical demand forming floor support.
China's gold ETFs recorded net inflows for consecutive days, attracting over 300 million yuan in nearly 8 days, reflecting domestic investors' growing demand for gold allocation. Combined with the long-term trend of global central bank gold purchases, physical demand imposed a substantial constraint on the downside room for precious metals.
[Macro Summary]
This week, the precious metals market saw intense tug-of-war between bulls and bears, overall moving sideways in a narrow range. On one hand, repeated Middle East geopolitical conflicts and escalating global trade frictions provided temporary safe-haven buying support; on the other hand, the strengthened hawkish stance of the US Fed, US Treasury yields and the US dollar index staying high, and oil price rebound pushing up rate hike expectations together exerted sustained pressure. The trending market has not yet clearly emerged, and focus should be on the marginal impacts of changes in September rate hike expectations, the evolution of the Middle East situation, and further escalation of trade frictions.
