[Bearish for precious metals]
The Jackson Hole symposium intensively released hawkish signals, and expectations for a September rate hike rapidly heated up
At the Jackson Hole global central bank symposium in late August, Fed Chairman Walsh delivered a hawkish keynote speech, explicitly reaffirming that the 2% inflation target remains unwavering, stressing that the current inflation pullback process is still not solid, and stating that if inflation stickiness exceeds expectations, the Fed will not hesitate to take further tightening action, without ruling out a September rate hike option. At the same time, Fed Governor Hammack and Minneapolis Fed President Goolsbee also released hawkish statements, both arguing that the current policy rate is not enough to ensure a sustained pullback in inflation, and supporting keeping the rate hike option on the table to address the risk of a price rebound.
Hit by the intensive hawkish remarks, the market's priced probability of a September Fed rate hike jumped rapidly from 35% before the meeting to about 60%, while the interest rate futures market also pushed back the timing of the first interest rate cut, further reinforcing expectations of "higher for longer" rates. As non-interest-bearing assets, precious metals are highly negatively correlated with interest rate trends, and the revival of rate hike expectations directly raises the opportunity cost of holding them, exerting clear pressure on futures.
The US-Iran conflict escalated again, and the oil price rebound strengthened the inflation-to-rate-hike transmission chain
This week, geopolitical tensions in the Middle East intensified again, with clear signs of escalation in the US-Iran conflict. The US launched multiple rounds of airstrikes on military targets inside Iran and around the Strait of Hormuz, while Iran responded with missile attacks on US military bases in the Middle East and passing oil tankers. Shipping safety in the Strait of Hormuz once again came under threat, and the regional conflict risks escalating into a full-scale confrontation.
The escalation of geopolitical conflict directly drove a rebound in international oil prices, with Brent crude quickly rebounding from below $80 to above $85 per barrel. The rise in energy prices once again intensified market concerns about a second round of inflation, reinforcing the underlying logic for the Fed to maintain high rates or even hike further. Although geopolitical conflict itself carries safe-haven attributes, in the current Fed policy-sensitive period, the transmission chain of "oil price rise → inflation stickiness → rate hike expectations heating up" dominates, exerting indirect pressure on precious metals.
US Treasury yields stay high, with fiscal supply pressure continuing to weigh
The US Treasury market faced dual pressures from supply and policy this week, with long-end yields consolidating at historical highs. The 10-year Treasury yield held steady in the 4.65%-4.7% range, while the 30-year Treasury yield remained above 5.2%, near its highest level in 19 years. On one hand, hawkish remarks from the US Fed pushed up policy rate expectations; on the other, the Treasury's large-scale debt issuance continued to advance in Q3. Supply-side pressure, combined with funding market disruptions at the start of the quarter, jointly depressed bond prices and pushed yields higher.
Sovereign bond yields in major global economies stayed high as well, with European and Japanese bond yields near multi-year highs. The upward shift in the global risk-free rate centre remained intact. The opportunity cost of holding precious metals stayed elevated, dampening their appeal to institutional funds, and valuations continued to face persistent pressure.
India again calls for curbs on gold consumption, with marginal weakening in physical demand support
Indian Prime Minister Modi delivered a national address this week, calling on the public for the second time this year to "avoid buying gold unless necessary," guiding a reduction in gold imports to ease balance-of-payments pressure. As the world's largest gold consumer, India accounts for over 20% of global private gold consumption. Policy guidance, combined with domestic inflationary pressure, will directly curb household gold consumption demand. Meanwhile, India's silver consumption demand also showed no improvement, with both industrial and jewellery demand remaining weak.
Physical demand is an important floor for precious metals prices. Tighter consumption policies in India, coupled with weak industrial demand amid a slowing global economy, will marginally weaken the support that physical buying provides to prices, creating a medium and long-term demand-side headwind for precious metals.
[Bullish for precious metals]
ADP employment came in far below expectations, with cautious pricing of non-farm payrolls amid labour cooling expectations
US ADP private-sector employment data for August showed an increase of only 38,000 jobs, far below market expectations of 72,000, hitting a near five-year low since 2021. The prior figure was also revised down to 61,000, indicating that the US labour market is cooling at a pace significantly faster than market expectations. As a leading indicator of non-farm payrolls, the disappointing ADP data prompted the market to broadly lower expectations for the August non-farm payrolls data due on Friday. The average institutional forecast was cut from 150,000 to 120,000, with some institutions even projecting job gains of less than 100,000. The job market is one of the core anchors of US Fed policy decisions, and continued labor cooling will limit the Fed's room for rate hikes and may even open a window for a policy pivot. After the data release, US Treasury yields pulled back in the short term, the US dollar index weakened, and precious metals futures rose rapidly, as the market front-ran the logic of "weakening employment → marginal policy easing," making this the most direct bullish driver of the week.
The yen's sudden intraday surge sparked intervention speculation, and the US dollar index's sharp drop highlighted concerns over US Treasuries
On Wednesday, the yen suddenly spiked in intraday trading, with USD/JPY plunging nearly 2% in a short period, breaking below the 145 level and posting its largest single-day drop in nearly three months. The market widely speculated that Japan's Ministry of Finance intervened again in the currency market, selling US dollars and buying yen. Driven by the yen's sharp appreciation, the US dollar index fell 0.7% intraday, hitting a nearly one-month low, and precious metals priced in US dollars directly benefited from the exchange rate conversion effect.
Behind this yen move lies a deeper logic: market concerns about US debt and US dollar creditworthiness continue to simmer. As the largest foreign holder of US Treasuries, Japan's continued selling of Treasuries to stabilize the yen would intensify selling pressure in the Treasury market. Meanwhile, the US's passive tolerance of yen appreciation to avoid a Treasury crash indirectly confirms the fragility of the dollar system. Rising debt risk concerns will provide long-term support for gold's non-sovereign credit hedge value.
The repo backstop effect continues to show, and US Treasury yields have downward repair momentum
The US Treasury's expanded long-term bond buyback operations will officially take effect on September 9, with a maximum single buyback size of $4 billion, providing sustained liquidity support to the long-end Treasury market. At the same time, the Fed's overnight reverse repo (ON RRP) balance continues to pull back, market short-term liquidity is marginally easing, and upward pressure on short-end rates is easing.
With the combined effect of the repo tool backstop and marginal liquidity easing, the momentum for a sustained sharp rise in US Treasury yields has weakened, and long-end yields have room for a phased downward repair. If real rates pull back along with yields, this will directly reduce the opportunity cost of holding precious metals and provide repair support for valuations.
Domestic speculative bulls entered the market strongly, with the domestic and overseas markets jointly boosting bullish sentiment
This week, the domestic precious metals futures market in China significantly outperformed the overseas market, with strong buying momentum from bulls in the Chinese market. Open interest in the most-traded gold and silver futures contracts on the SHFE continued to climb, while trading volume expanded sharply, showing clear signs of speculative funds adding long positions. Domestic gold ETFs maintained net inflows, with weekly inflows exceeding 200 million yuan, as allocation demand from onshore investors continued to be released.
Against the backdrop of a tug-of-war between longs and shorts in the global market, the strong performance of the domestic futures market created a linkage effect between the domestic and overseas markets, providing positive feedback to international precious metals prices. The concentrated entry of speculative funds amplified short-term market elasticity, becoming an important marginal force driving the futures market higher.
[Macro Summary]
This week, the precious metals market saw intense competition between bullish and bearish factors, with prices showing a wild swings pattern. Early in the week, precious metals came under pressure and pulled back due to the escalation of the US-Iran conflict and hawkish remarks from the Jackson Hole symposium. Mid-week, ADP employment data came in surprisingly weak, and yen volatility triggered a sharp drop in the US dollar, driving a rapid rebound in the futures market as the balance of power between bulls and bears shifted in stages.
In the short term, the August non-farm payrolls data to be released on Friday is the core pricing anchor for the next phase, which will directly determine the final direction of September rate hike expectations and guide the short-term direction of precious metals. In the medium term, US Treasury fiscal pressures and concerns about dollar creditworthiness continue to become more visible, with global central bank gold purchases and domestic allocation demand supporting the bottom. However, the US Fed's hawkish stance remains unchanged, US Treasury yields fluctuate at highs, and physical demand is marginally weakening, all of which still pose headwinds. Going forward, close attention should be paid to the non-farm payrolls data, the evolution of the US-Iran situation, and marginal changes in US Treasury yields.
