This week, as the impact of slowing US inflation gradually faded and with Fed rate hike expectations not yet fully priced in, the market lacked fresh bullish catalysts. Persistently rising US Treasury yields, combined with liquidity strain from major tech IPOs, dragged precious metals and risk assets broadly lower.

Affected by overseas price action, Shanghai silver futures主力 contract fell more than 4.5% during Wednesday's day session, while Shanghai gold主力 declined over 1.5%.

Where the pressure originates

Weak overseas demand and the booming AI financing environment have pushed long-term US Treasury yields higher, intensifying market liquidity tightness. According to the latest US Treasury data, foreign holdings of US Treasuries fell by $72.1 billion month-over-month in June, bringing the total to $9.3 trillion. Since hitting an all-time high in February, foreign holdings have declined in three of the past four months. Japan, the largest foreign holder, reduced its position by approximately $26.4 billion in June, the largest reduction among all countries. China's holdings fell by $25.9 billion, while the UK trimmed $8.7 billion.

Although recent softening in US employment and inflation has weighed on Fed rate hike expectations, hawkish comments from some officials suggest that expectations for a hike this year have not fully dissipated. Combined with weak overseas demand for Treasuries, the US Treasury Department continues to maintain a high issuance scale, increasing fiscal deficit pressure and further pushing up yields, particularly on the long end.

Meanwhile, the AI financing boom continues unabated. August US investment-grade bond issuance has already reached $145.2 billion, surpassing the August 2020 record of $136 billion. Major investment banks are flocking to the market, causing severe structural imbalance in capital allocation and exacerbating liquidity tightness in non-tech sectors.

Additionally, this week saw a major tech company list on China's A-share market, creating a similar siphoning effect. Asian stock indices, precious metals, and non-ferrous metals sectors all came under pressure with significant declines.

Short-term sentiment divergence emerges

Short-term capital sentiment has shown divergence, with precious metals transitioning into a consolidation phase. As of August 18, holdings in the world's largest SPDR Gold ETF stood at approximately 1,025.2 tonnes. After ending a seven-day inflow streak in the middle of last week, holdings are now gradually recovering from lower levels. Previously, firm investment capital had driven prices to stage highs, after which some funds took profits and exited, though on a relatively limited scale.

For the week ending August 11, CFTC speculative net long positions in gold futures stood at 137,662 contracts, a substantial increase of 6,896 contracts from the prior week. This was primarily driven by speculative long positions increasing at a much faster pace than shorts, indicating strong bullish sentiment in the market. However, some investors anticipate prices may be peaking and correcting. As the bullish and bearish logic has not yet shifted, the market may enter a consolidation phase.

Outlook

Looking ahead, with long-term US Treasury yields remaining elevated, the Fed may face a situation of passive tightening absent external intervention, keeping market liquidity tight. Additionally, the US-Iran situation remains deadlocked, with the possibility of renewed military strikes that could push oil prices and inflation expectations higher, potentially accelerating capital rotation.

These factors intensify the short-term macro headwinds for precious metals, and prices will likely test key support levels repeatedly. The market will seek further policy clues from Fed Chair Warsh's remarks at the late-August Jackson Hole global central bank symposium. Investors should remain cautious, with international gold prices expected to trade in the $4,300–$4,450 range and international silver between $62–$66. Given that the long-term bullish logic remains intact, prices can be accumulated in batches when they pull back to relatively low levels.

Risk warning

Escalation of Middle East conflict leading to energy supply disruption and surging inflation, or persistent US economic overheating prompting comprehensive Fed policy tightening.