【Bullish for Precious Metals】
Central Bank Gold Purchases Continue to Accelerate, with Official Demand Providing a Long-Term Floor
According to the latest data released by the central bank, China’s official gold reserves reached 76.73 million troy ounces at the end of August, up 650,000 troy ounces (approximately 20.22 tonnes) month-on-month. This marked the 22nd consecutive month of gold purchases, with the monthly increase accelerating further from July and reaching the highest level since China resumed gold purchases in November 2024. Monthly purchase volumes have continued to rise since March. At the global level, World Gold Council data showed that global central banks recorded net gold purchases of 289 tonnes in Q2, up 62% year-on-year, representing the highest quarterly purchase volume in nearly four years. The acceleration in official-sector gold purchases reinforces the structural logic of reserve diversification and hedging against sovereign credit risk, providing structural support for gold prices and materially limiting downside risks.
A Weaker US Dollar and Rising Expectations for Non-US Monetary Tightening Provide Indirect Support
The US Dollar Index remained weak this week, declining approximately 0.8% over the week and 1.02% on a monthly basis. A weaker US dollar directly improves the relative attractiveness of dollar-denominated precious metals for global investors, encouraging additional buying from the sidelines. Meanwhile, expectations for a Bank of Japan rate hike continued to strengthen, while persistent inflation in the euro area supported a hawkish stance from the European Central Bank. Rising expectations for monetary tightening outside the US have indirectly pressured the US dollar and provided additional support for precious metals.
Repeated US Treasury Intervention in the Treasury Market Raises Fiscal Sustainability Concerns and Strengthens Sovereign Credit Hedging Demand
The US Treasury announced that it would increase the size of its long-term Treasury buyback operations to $6 billion, approximately three times the normal level, while committing to maintain regular operations at no less than $4 billion in the future. This follows the Treasury’s announcement on August 18 that it would at least double the size of its buybacks, highlighting continued liquidity pressures in the Treasury market and difficulties in absorbing long-term debt supply. Although the $6 billion operation was at the lower end of market expectations and briefly triggered an increase rather than a decline in Treasury yields, the normalization of fiscal intervention and the growing perception of debt monetization could, over the medium to long term, intensify concerns over US fiscal sustainability. With US public debt already exceeding $40 trillion, persistent fiscal concerns could further weaken confidence in the US dollar and strengthen the role of gold as a non-sovereign-credit asset for hedging, creating a reinforcing bullish factor alongside rising debt risks.
Dovish Remarks from Fed Governor Waller Reduce Expectations for a September Rate Hike at the Margin
Fed Governor Waller struck a relatively dovish tone, indicating that if the upcoming inflation data confirm that inflationary pressures are easing, he would be inclined to support keeping interest rates unchanged at the September FOMC meeting. His comments stood in sharp contrast to the hawkish remarks delivered by Fed Chair at Jackson Hole, prompting markets to scale back expectations for a September rate hike and providing precious metals with a temporary window of relief.
【Bearish for Precious Metals】
August Nonfarm Payrolls Significantly Beat Expectations, with Economic Resilience Supporting the Rate-Hike Narrative
US nonfarm payrolls increased by 162,000 in August, significantly exceeding the market expectation of 55,000 and marking the second-largest monthly increase of the year. Data for June and July were also revised upward by a combined 55,000. The resilience of the labor market contrasted sharply with the unexpectedly weak July payrolls report, significantly easing concerns over a potential economic slowdown and providing fundamental support for the Federal Reserve to maintain a hawkish stance and for expectations of a September rate hike.
Treasury Yields Continue to Rise Above 4.8%, While Elevated Real Yields Weigh on Precious Metals Valuations
US Treasury yields continued to climb this week. The 10-year Treasury yield rose above the key 4.8% level, reaching 4.857% on September 10, the highest level since November 2023. Meanwhile, the 30-year Treasury yield rose to 5.307%, its highest level since 2007. Persistently elevated real yields continue to increase the opportunity cost of holding non-yielding precious metals, placing short-term pressure on precious metals valuations.
US-Iran Tensions Push Up Energy Prices, Reinforcing Expectations for Monetary Tightening
Military tensions between the US and Iran remained elevated this week, with markets continuing to price in the risk of disruptions to shipping through the Strait of Hormuz, while Brent crude remained above $100 per barrel. The market’s interpretation of the geopolitical developments has shifted: elevated oil prices could directly increase inflationary pressure in the US, while expectations that energy inflation will slow the decline in core inflation have strengthened expectations for a September rate hike by the Federal Reserve. The resulting increase in interest rates and opportunity costs has outweighed traditional safe-haven demand, creating downward pressure on precious metals.
With the September FOMC Meeting Approaching, Policy Uncertainty Is Increasing and Weighing on Risk Appetite
With the September FOMC meeting approaching, the market remains divided over whether the Federal Reserve will raise interest rates. On August 28, Fed Chair Powell delivered hawkish remarks at the Jackson Hole symposium, emphasizing that inflation remained too high and that further rate hikes could be warranted if the Fed was not sufficiently confident that inflation was moving toward its target. His stance contrasted with Waller’s relatively dovish comments, highlighting growing internal divergence within the Fed. Ahead of the meeting, cautious sentiment has intensified, with long positions being reduced and precious metals volatility rising significantly as market participants remain more defensive.
【Macro Summary】
Precious metals markets experienced a volatile pattern of an initial decline followed by a rebound this week. At the beginning of the week, stronger-than-expected August nonfarm payrolls and rising Treasury yields weighed on prices, while a weaker US dollar later supported a recovery. The macro environment remained characterized by a mix of bullish and bearish factors. Growing concerns over US fiscal sustainability and demand for sovereign-credit hedging, together with a weaker US dollar, provided support. However, stronger-than-expected nonfarm payrolls, higher oil prices stemming from US-Iran tensions and the resulting increase in expectations for monetary tightening, uncertainty surrounding September FOMC policy, and a wait-and-see approach ahead of inflation data continued to cap the upside. Going forward, the market will focus on August CPI and PPI data, the September 15–16 FOMC meeting and policy decision, and marginal changes in US-Iran tensions.
