Market sentiment has become increasingly fragmented, causing the precious metals rally led by gold to pause after breaking out of a prior consolidation range in early August. The sector has now returned to a sideways pattern below the 200-day moving average. Simultaneously, a reassessment of the US-Iran situation and elevated valuations in US equities are creating a scenario where bullish catalysts for gold may be largely priced in.
The long-only trade in US-priced assets and dollar-denominated risk assets is showing signs of confusion. Analyst views are more divided than ever. A significant portion of investors believes Federal Reserve Chair Warsh will not raise rates and are continuing to buy dips, while others worry that the current state of the US economy and oil prices mean a continued pause on rate hikes could allow the market to do the tightening for the Fed. Interpretations of the US-Iran situation are also diverging sharply. Some, led by former President Trump, view the conflict as a chapter in America's bid to reclaim control of a vital global shipping chokepoint and reassert global dominance. Conversely, others argue that a prolonged war with Iran lacks any viable path to victory.
Stagflation fears and conflicting viewpoints are reinforcing each other in the short term. From a combined technical and fundamental perspective, using spot gold as an example, the conflicting fundamental logic suggests it may take time for the market to digest prices above $4,500. However, based on current fundamental analysis, the outlook for gold and silver remains cautiously bullish. This analysis is for reference only.
Reviewing Recent Price Action
Starting August 5, major precious metals, gold and silver, experienced rapid breakouts, rallying after breaking out of their previous ranges. Silver exhibited a clear technical characteristic of strengthening ahead of copper. In contrast, platinum and palladium showed more nuanced movements during this bull run. For instance, the NYMEX Platinum October contract surged 6.53% on August 4, then tested the 1,800 level but failed to break through decisively for six consecutive trading days, leading to a sharp sell-off. The NYMEX Palladium September contract rallied 6.72% on August 4 but saw a pullback from around the 1,400 level on August 5, closing only 1.37% higher, before trending down to test its 20-day moving average.
The gains in platinum and palladium showed a clear one-day lead over gold, but the subsequent lack of follow-through in these smaller precious metals, contrasted with gold's continued grinding higher, created a significant technical divergence. Examining the technical structure, the COMEX Gold December contract is facing a clear battle between bulls and bears at the key psychological level. Viewing the late-June consolidation as a bottom and a launching point for an upward attempt, the 4,300 level is seen as the minimum acceptable low for this bull run from a bullish perspective, a level that has been effectively verified in recent trading. The 4,500 mark above represents strong resistance, and until it is breached, prices are expected to trade in a high-level range.
For silver, levels below 15,000 yuan per kilogram for Shanghai silver and below $60 for COMEX Silver are the core support zones for this bull run. These levels have not yet been materially tested, and the bullish structure remains intact. The technical weakness in platinum and palladium highlights the divergence among the metals. The 1,800 level remains a solid resistance for platinum, with the 1,680-1,700 zone becoming a new support level to watch. Palladium, after its failed rally near 1,400, closed the week lower and has lost its 20-day moving average, showing early signs of a peak. It is the weakest technically among the four precious metals and the most likely to turn first. This pattern of platinum testing and failing and palladium weakening and falling behind contrasts with the steady upward movement of gold and silver, suggesting that while smaller precious metals have strong short-term explosive power, they lack the sustainability and capital flow seen in gold.
The gold/silver ratio has now fallen to oscillate near its mid-line. Historically, the end of a silver bull run is often preceded by a shift in platinum, palladium, and other industrial metals. Short-term sentiment shifts can be captured by monitoring the Bollinger Bands on the COMEX Gold/Silver ratio, with the lower band serving as a clear support level to watch for a potential move in gold. In summary, the ultimate success of this precious metals bull run will depend on the defense of the $4,300 level for gold and the key support levels for silver.
US-Iran Tensions Firmly Support Oil Prices
In mid-August, US-Iran negotiations hit another stalemate, with control of the Strait of Hormuz and ceasefire terms becoming core contradictions. Transit through the strait remains low, and the US has continued to tighten its blockade and economic pressure. On August 11, vessel traffic through the Strait of Hormuz was approximately 13 ships, a near three-month low and a dramatic drop from the pre-conflict daily average of 130. The International Energy Agency estimates that the global oil supply-demand gap will widen to an average of 1.8 million barrels per day in the third quarter. Driven by this, WTI and Brent crude oil posted weekly gains of 5.40% and 5.95%, respectively. Current oil prices are primarily reflecting a geopolitical risk premium on the supply side. Given Iran's effective control of the strait, it is difficult for crude oil prices to return to their previous risk-free premium levels.
The surge in oil prices presents two main issues. First, it raises actual and expected inflation. The strength in oil prices means risks from energy-driven reflation remain a concern, and the stickiness of service and non-energy costs, combined with rising energy prices, may force a correction in the market's pricing of "disinflation." Second, the traditional seesaw relationship between gold and oil is re-emerging. Last week, crude oil and gold rallied simultaneously, reflecting a market pricing system where multiple, intertwined logics are at play: geopolitical risks, Fed policy expectations, and macroeconomic uncertainty. Cooling rate hike expectations are positive for gold, and a higher geopolitical risk premium also boosts gold's safe-haven appeal. However, this also pushes up oil prices, strengthening inflation risks and disrupting economic growth and trade. In the short term, after WTI crude oil's main contract broke above $85, gold showed a clear pattern of lagging. It remains to be seen if the simultaneous rise in gold and oil can continue.
Persistent Pressure on Long-Dated US Treasury Sales
Last Thursday, the US Treasury auctioned $25 billion in 30-year bonds, with the high yield reaching 5.216%, a high not seen since 2001. This auction saw a "tail," where the high yield was above the when-issued yield, meaning investors demanded a higher yield to take on the debt. Demand was slightly weaker than market expectations. Last week, the Treasury completed two key long-dated bond auctions, with long-term financing costs hitting multi-decade highs. On August 12, a $42 billion auction of 10-year notes yielded 4.683%, the highest since the 2008 global financial crisis. On August 13, the $25 billion 30-year bond auction yielded 5.216%, the highest since 2001, and also saw a "tail" of about 0.4 basis points. The bid-to-cover ratio was 2.39 times, weaker than the previous 2.44 times, confirming that investors demanded a higher yield to step in.
More concerning is the structural shift in demand. The allocation to foreign investors decreased while the allocation to primary dealers increased, suggesting that market demand hasn't disappeared but has become increasingly demanding for a higher term premium. The underlying driver of long-end pressure is the vicious cycle of "debt, interest, and deficits" at the fiscal level. The US federal deficit for July was $432.3 billion, a year-on-year increase of about 48%, the largest monthly deficit since March 2021. The cumulative deficit for the first ten months of the current fiscal year is close to $1.8 trillion, with total national debt surpassing $40 trillion. Interest expenses have already reached $1.17 trillion. With the onset of the US-Iran conflict, the pressure on US Treasuries has become more complex than before, and the rise in long-term yields may not be entirely negative for high precious metal prices in the long run. The advantage of US Treasuries as a safe-haven asset is diminishing due to the accumulation of debt.
Rate Hike Pressure and Elevated Stock Market
In the short term, the market still faces a latent pressure from potential rate hikes. On one hand, Fed Chair Warsh is generally hawkish. The July FOMC meeting saw a 9-3 vote to hold rates steady, the first three-vote dissent since September 2016. Warsh's written statement emphasized the hard target of the 2% inflation goal, which the market interpreted as laying the groundwork for a possible rate hike at the next FOMC meeting. On the other hand, the US-Iran dispute still lacks a clear agreement or framework. Iran has shown no intention of extending the ceasefire and has not decided on restarting negotiations. The standoff in the Strait of Hormuz continues, and the uncertainty of the energy supply shock makes it difficult for inflation expectations to cool completely. According to CME's "FedWatch" data from August 17, the probability of the Fed holding rates steady in September is 66.9%, with a 33.1% chance of a 25-basis-point hike. The probability of holding rates steady through October is 53.6%, with a 39.8% chance of a 25-basis-point hike and a 6.6% chance of a 50-basis-point hike.
Although the July non-farm payrolls data was weak overall (a net loss of 23,000 jobs versus an expected gain of 80,000; July retail sales fell 0.6% month-on-month, significantly missing expectations), the market has still priced in a considerable amount of rate hike expectations. For US equities, the Nasdaq, S&P 500, and Dow Jones Industrial Average are all at elevated levels. The S&P 500 hit a record high of 7,798.99 on August 14, and the Nasdaq 100 index surpassed 30,000. The VIX volatility index briefly fell to 14.39, its lowest level of the year. The market could technically either consolidate before declining or consolidate before rising. It is worth noting that under the "calm surface" of low volatility in US stocks, risks are accumulating. The July retail sales figures showed the largest drop in over a year, and the University of Michigan's preliminary consumer sentiment index fell to 51, well below the expected 55. This divergence between economic cooling signals and new index highs is a warning sign. With rate hike expectations persisting and the possibility of a US stock market sell-off, precious metals may face some short-term downward pressure, potentially following equities.
Summary
In the first half of August, the precious metals market displayed a pattern of divergence, with gold and silver moving steadily higher while platinum and palladium showed early strength but then faded. The COMEX Gold December contract is trading within a core range of $4,300-$4,500 per ounce. The $4,300 level was tested and verified on August 14 as a key support for the bull run. Silver followed copper's lead in strengthening first, and the core support levels below 15,000 yuan per kilogram for Shanghai silver and below $60 for COMEX Silver have not been materially breached, keeping the bullish structure intact. Platinum and palladium exhibited a technical pattern of a one-day lead and subsequent lag. The gold/silver ratio has now fallen to oscillate near its mid-line. Historically, the end of a silver bull run is often preceded by a shift in platinum, palladium, and other industrial metals, and short-term sentiment shifts can be captured by monitoring the Bollinger Bands on the COMEX Gold/Silver ratio.
On the driver side, three pressures and three supports coexist. The pressures include: first, the uncertain outlook for US-Iran talks, with Iran proposing to ban enemy nations from the Strait of Hormuz, making a transit agreement seem unlikely. For the week ending August 14, WTI crude rose 5.40% to $82.40 per barrel, and Brent crude rose 5.95% to $88.52 per barrel. Crude oil prices are unlikely to return to their previous risk-free premium levels, potentially leading to a rise in actual and expected inflation and a re-emergence of the gold-oil seesaw. Second, the persistent pressure on long-dated US Treasury sales, with the 30-year yield hitting 5.216%, a 23-year high, and the 10-year yield at 4.683%, a 17-year high. The safe-haven appeal of Treasuries is diminishing due to the accumulation of debt, and the rise in long-term yields may not be entirely negative for high precious metal prices in the long run. Third, latent rate hike pressure remains, with CME "FedWatch" data from August 17 showing a 33.1% probability of a hike in September and a 39.8% probability of a cumulative 25-basis-point hike by October. Combined with the stock market at historic highs, a reversal in equities could drag precious metals into a short-term correction.
The supports include: a geopolitical risk premium that gives gold its safe-haven appeal; the weakening of US Treasury credit and the expansion of the fiscal deficit, which erode the foundation of the US dollar's credibility; and the undamaged bullish technical structure of gold and silver. These three factors together form a medium-term floor for the precious metals. The ultimate success of this precious metals bull run will likely depend on the defense of the $4,300 level for gold and the key support levels for silver. In the short term, precious metals will oscillate at high levels between the pressure of "high real interest rates + rate hike expectations" and the support from "geopolitical premium + fiscal credit + central bank gold purchases." The upcoming FOMC meeting minutes on August 19 and the Jackson Hole symposium speech will be key events for judging the rate path and the direction of precious metals. Overall, influenced by the US Treasury situation, the outlook for precious metals has been revised to a cautious bullish stance. This is for reference only.