[Bearish for precious metals]
Fed raises interest rates for first time in three years, dot plot sharply revised up reinforcing persistence of high rates
In the early morning of September 17 Beijing time, the Fed's FOMC meeting voted unanimously to raise interest rates by 25 basis points, lifting the target range for the federal funds rate to 3.75%-4.00%, the first rate hike since July 2023. More hawkish than the hike itself was the latest interest rate dot plot: of the 18 officials who submitted projections, 16 expected at least one more rate hike within 2026, and the median year-end rate projection was sharply revised up from 3.8% in June to 4.1%; meanwhile, the 2027 median rate was also raised to 4.1%, completely overturning the market's previous pricing of rate cuts starting next year and sending a clear signal of "higher for longer" rather than a one-off temporary adjustment, Sina Finance reported.
Fed Chairman Warsh reiterated at the press conference that US inflation remains too high and has persisted for too long, stressed that this action will push inflation back to the 2% target in a more timely manner, and did not rule out the possibility of further tightening measures. The upward shift in the policy rate center and the extended cycle directly raise the opportunity cost of holding precious metals as non-interest-bearing assets, exerting sustained pressure on valuations.
US Treasury yields remain at historical highs, global risk-free rate center shifts upward
This week, the US Treasury market continued to shoot up amid rate hike expectations, with the 10-year Treasury yield once approaching the 5% mark and the 30-year yield holding above 5.2% at a near 19-year high; sovereign bond yields in European economies such as France and Germany also rose in tandem, keeping the global risk-free rate center in a multi-year high range overall. Although long-end yields pulled back slightly after the rate hike was delivered, supply pressure from the Treasury's large-scale debt issuance in Q3 remains, and the Fed's tightening stance has not fundamentally shifted, leaving the pattern of yields being more likely to rise than fall intact.
Real interest rates continue to fluctuate at highs, persistently weakening the appeal of precious metals to institutional funds, with valuations clearly under pressure. Combined with quarter-start funding market disruptions and concentrated corporate bond issuance, the amplified volatility in the bond market has also intensified the consolidation range of precious metals futures.
Inflation stickiness persists, with energy prices underpinning the tightening logic
US August CPI data showed headline CPI rose 3.4% YoY, unchanged from the previous reading, while core CPI rose 2.4% YoY, continuing its downward trend, but core CPI rose 0.3% MoM, exceeding market expectations. Meanwhile, August PPI rebounded to 5.4% YoY, and September consumer inflation expectations edged up, indicating a slower pace of inflation decline and persistent price stickiness, Sina Finance reported.
At the same time, Middle East geopolitical conflicts have kept international oil prices elevated, with Brent crude trading above $90 per barrel. Rising energy prices have heightened the risk of secondary inflation, providing fundamental support for the US Fed to maintain its tightening stance or even hike rates further down the road. Uncertainty over the pace of inflation decline has constrained both the scope and pace of valuation recovery in precious metals.
[Bullish for precious metals]
The rate hike has landed, bad news is fully priced in, and market sentiment is staging a phased recovery
This Fed rate hike had been fully priced in by the market nearly a month in advance. Before the hike was delivered, precious metals had already adjusted downward to release risk, with spot gold pulling back by more than $150 per ounce cumulatively, and the bearish expectations of the rate hike had been fully reflected in prices. After the decision was announced, the market's "buy the rumor, sell the fact" logic played out, with precious metals futures stopping their decline and rebounding. Combined with concentrated short covering by earlier bears, prices recovered rapidly.
After the concentrated release of short-term bearish sentiment, the willingness of capital to buy on dips has clearly rebounded. Open interest in China's precious metals futures has recovered, ETFs have continued to see net inflows, and bullish sentiment has staged a phased recovery amid the linkage between domestic and overseas markets, making this the most direct bullish driver for the futures market this week.
The broader inflation trend remains toward moderation, and the steepest phase of tightening is passing
Although August core CPI rose slightly more than expected on a MoM basis, overall inflation remains on a downward trajectory: core CPI rose 2.4% YoY, continuing to decline from the previous reading and sitting at its lowest level since 2024. After stripping out energy price fluctuations, the broader downward trend in core goods and services inflation remains unchanged. The market widely believes that this rate hike is most likely the final move of this tightening cycle, and as inflation gradually approaches the 2% target, the steepest phase of policy tightening is passing. The room for further sharp rises in interest rates is limited. Market focus will gradually shift from "how much more to hike" to "how long rates stay high." The pace of policy tightening is weakening at the margin, leaving room for valuation repair in precious metals.
Global central banks continue to buy gold as a floor, and the medium and long-term allocation logic keeps strengthening
Sustained official-sector gold purchases provide solid bottom support for precious metals prices: the PBOC has increased its gold holdings for 22 consecutive months, adding about 20 mt in August alone and more than 80 mt cumulatively this year. Global central banks' net gold purchases in Q2 hit a record high for the same period in history, and the long-term trend of reserve diversification and de-dollarization remains unchanged, Securities Daily reported.
Meanwhile, the US federal debt has surpassed $40 trillion, fiscal interest pressure keeps climbing, and concerns about dollar credit persist over the long term. Gold's allocation value as a non-sovereign credit hedge continues to stand out. Physical demand and strategic allocation demand together cement the price floor and limit the downside room for precious metals.
[Macro Summary]
This week, the precious metals market centered on the Fed's September FOMC meeting, showing an overall pattern of initial weakness followed by strength. Early in the week, precious metals kept correcting under pressure from rising rate-hike expectations and surging US Treasury yields. After the hike landed, sentiment repaired as bad news was exhausted, and futures rebounded.
In the short term, the signal of "higher for longer" conveyed by the Fed's dot plot still caps the upside, while sticky inflation and energy price fluctuations also bring uncertainty. On the other hand, the rate hike being out of the way, the broader direction of easing inflation, and central bank gold purchases together form bottom support. Going forward, the focus should be on marginal changes in remaining rate-hike expectations for the year, the direction of inflation data, and the pace of US Treasury yields.
