[Bearish for precious metals]
The Fed held rates steady but internal divisions deepened, with the hawkish tone yet to waver.
On July 30, the Fed announced it would keep the federal funds rate unchanged at 3.50%–3.75%, marking the fifth consecutive pause in rate hikes. However, the vote was 9 to 3, with three regional Fed presidents supporting a rate hike — the first time since 2016 that three dissenting votes appeared, highlighting the strengthening of the hawkish camp internally. At the press conference, Fed Chairman Warsh reiterated the unwavering 2% inflation target and stressed that decisive action would be taken if inflation conditions worsen. Market expectations for a September rate hike increased, and the extended period of elevated rates continued to weigh on precious metal valuations.
US Treasury yields hit multi-year highs, with high real rates raising holding costs.
Driven by the Fed's hawkish stance and fiscal supply pressures, the 10-year US Treasury yield remained elevated above 4.6%, while the 30-year US Treasury yield briefly breached 5.2%, its highest since 2007. The opportunity cost of holding precious metals as non-yielding assets remained high, dampening their appeal to investors.
The US dollar index continued to consolidate at highs, while the rebound in oil prices reinforced the inflation-rate hike chain.
The US dollar index consolidated at highs this week within the 101-101.5 range. Although it pulled back slightly after the Fed decision, its overall strong trend remained intact, directly weighing on dollar-denominated precious metal prices. Meanwhile, escalating Middle East conflicts drove a sharp rebound in international oil prices, with Brent crude back above $90 per barrel. The rise in energy prices heightened the risk of a second-round inflation effect, in turn reinforcing the logic for the Fed to maintain high rates and potentially hike further.
Labour market resilience exceeded expectations, supporting prolonged high rates.
In the US, initial jobless claims for the week ending July 18 fell to 187,000, the lowest since 1969 and a near 50-year low, demonstrating the labour market's considerable resilience. The strong employment data reduced the likelihood of a Fed rate cut and provided fundamental support for further rate hikes. The period of elevated real rates was further extended, continuing to weigh on the valuation of non-yielding precious metals.
[Bullish for precious metals]
The Fed decision materialized as expected, and as the bearish news was fully priced in, sentiment recovered.
The outcome of the Fed holding rates steady had been fully priced in by the market beforehand. Although the signals were hawkish, no actual rate hike materialized. This allowed previously suppressed bullish sentiment to be released in a phased manner, driving a modest rebound in precious metals futures.
Equity market volatility intensified, with hedging demand edging up on the margin.
This week, US stock market correction pressure intensified, with the Nasdaq 100 entering a technical correction zone. Tech stocks' earnings expectations and high valuations came under pressure in the high-rate environment. The rise in equity market volatility prompted some funds to increase their allocation to gold as a risk hedging tool, providing additional support to short-term buying.
Global trade frictions escalated across the board, and policy uncertainty boosted hedging demand
On July 24, the US formally imposed tariffs of 10%–12.5% on 60 global trading partners, covering over 99% of total US trade, replacing the emergency tariffs previously ruled unconstitutional by the Supreme Court with Section 301, significantly enhancing legal compliance. Among them, 14 economies were subject to a 10% rate and 46 to a 12.5% rate, with only energy, natural gas, and a few other categories exempt. Trade barriers raised the risk of a global economic recession, and policy uncertainty drove funds to seek hedges in non-sovereign credit assets such as gold, resonating with geopolitical risk aversion.
China’s gold ETFs saw sustained net inflows, and physical demand formed a bottom support
China’s gold ETFs saw net capital inflows for multiple consecutive days, attracting over 300 million yuan over the past 8 days, reflecting that domestic investors’ demand for gold allocation continued to rise. Coupled with the long-term trend of global central bank gold purchases, physical demand imposed tangible constraints on the downside room for precious metals.
[Macro Summary]
This week, the precious metals market saw intense battles between bulls and bears, and overall moved sideways in a narrow range. On the one hand, repeated geopolitical conflicts in the Middle East and escalating global trade frictions provided periodic safe-haven buying support; on the other hand, the Fed’s strengthened hawkish stance, persistently high US Treasury yields and the US dollar index, and the rebound in oil prices that pushed up rate hike expectations collectively exerted sustained pressure. A clear directional trend has yet to emerge. Going forward, close attention should be paid to changes in rate hike expectations for September, the evolution of the Middle East situation, and the marginal impact of further escalation of trade frictions.
