Market participants have once again revised upward the probability of a U.S. interest rate hike this year. The likelihood of a September rate increase has surged from 53.7% two weeks ago to 81.9% as of last Friday, while the probability of a December hike has climbed from 76% to 92.1%.

It has been emphasized repeatedly that futures market positioning typically offers reliable guidance for predicting short-term U.S. interest rates, though its accuracy diminishes over longer periods of six months or more. Spot gold remained above the $4,100 level for only about two days last week before falling back through that threshold, a technical development that needs little elaboration.

International mining giant Newmont recently released its second-quarter operating results. While revenue came in slightly below the average sell-side estimate, earnings per share of $2.10 exceeded the market consensus of $1.98. Despite a significant decline in gold prices during the second quarter, Newmont still generated strong cash flow. As previously anticipated, the market chose to "sell the news," and Newmont's stock price fell after the earnings announcement. While a decline might be justified—for instance, if the market judges that gold has entered a bear market and expects prices to fall below $2,000—the company's actual cash flow and earnings are real and tangible.

Looking back, markets historically invested in stocks to chase earnings. Today, capital increasingly chases visions and crowded trades. The current market would rather have a potential $100 billion in future earnings achievable in ten years than a real $600 billion today.


CFTC Positioning Data Review

As of July 21, the net long positions of managed funds in COMEX gold and copper futures increased on a week-over-week basis. Palladium contracts, having been in a net long position for six consecutive weeks, have now been in a net short state for 19 consecutive weeks. Gold fund longs on COMEX rose 3% week-over-week to 439 tonnes, while shorts were flat at 54 tonnes, resulting in net longs increasing 4% to 384 tonnes. Silver fund longs rose 3% to 2,613 tonnes, but shorts surged 14% to 1,057 tonnes, pushing net longs down 4% to 1,556 tonnes, the lowest level in seven weeks. Platinum fund longs fell 5% to 22 tonnes, while shorts jumped 20% to 12 tonnes, causing net longs to plummet 25% to 10 tonnes.

Year-to-date, net long positions in U.S. gold futures have fallen by 3% (accumulated a 30% decline in 2025). Silver net longs are down 40% year-to-date (a 1% drop in 2025). Platinum net longs have risen 50% in 2025 (turning positive from negative). Copper net longs are up 5% year-to-date (also turning positive from negative in 2025).

Despite the contraction in net long gold positions in the U.S. futures market in 2025, the gold price still surged 64.4%, reflecting the dominance of physical demand over the futures market, which has been leveraged to hold gold prices back. Historically, capital controlled metal prices through the futures market. Since the global pandemic spread in 2020, net long positions in precious metals have consistently declined, suggesting funds intentionally prevented prices from rising. However, starting in the first quarter of this year, futures funds began to liquidate long positions for profit, yet gold prices remained high, confirming that physical demand far exceeds the leverage in the futures market.

CFTC weekly reports for copper began in 2007. As copper was in a bear market from 2008 to 2016, it is not surprising that COMEX copper has historically been in a net short position for most of that time. However, since 2020, the global pandemic's impact on supply chains and mine operations, combined with expectations of strong demand from AI and new technology development, has driven copper prices higher, even to new all-time highs.


Strategic Metals and Geopolitical Factors

Beyond gold's safe-haven status, heightened geopolitical tensions could push oil prices higher. China's monopoly on critical materials like rare earths, antimony, and tungsten is also expected to support their international prices, though not necessarily domestic ones. The U.S. government has not only taken a stake in MP Materials but also signed a 10-year supply contract with a minimum price of $110 per kilogram for neodymium-praseodymium, nearly double the Chinese selling price. The company's stock surged on the news. Recently, there have been reports that the U.S. Department of Defense is seeking to acquire cobalt metal overseas. Subsequently, U.S. government investments in Lithium Americas and Trilogy Metals, as well as funding for Nova Minerals, have all led to significant stock price increases.

Major gold producer Agnico Eagle has announced it will use $130 million to establish a new subsidiary dedicated to investing in strategic resource-related projects.


Gold to Gold Stock Ratio Indicator

The ratio of the spot gold price to the North American gold stock index, which provides short-term directional clues for gold, declined last week. By Friday, July 24, the ratio stood at 12.952, down 4.6% from 13.579 on July 17, and up 2.8% year-to-date. When market sentiment towards metals is optimistic, mining stocks outperform the physical commodity; conversely, when sentiment turns pessimistic, the physical commodity outperforms. In 2025, the ratio accumulated a 34.1% decline, meaning North American gold stocks outperformed physical gold. In 2024, the ratio rose 16.5%, and in 2023, it accumulated a 13.2% increase.

Historically, before 2008, the price/gold stock ratio was below 6 times. Since around 2009/2010, mining stocks have generally lagged behind the commodities themselves, a trend also seen with oil and gas producers in recent years. This is likely due to the rise of Environmental, Social, and Governance (ESG) investing. For instance, in 2021, BlackRock committed to the UK Parliament to stop investing in coal and oil producers, and they are certainly not the only fund manager to make such pledges.

Tracking the stock prices of overseas gold miners is considered a relatively reliable forward-looking tool. If gold prices continue to rise but gold miners' stocks experience a sharp decline, caution is warranted.


Gold-to-Silver Ratio

The gold-to-silver ratio is a measure of market sentiment, historically ranging between roughly 16 and 125 times. Generally, the more panicked the market, the higher the ratio. During the initial global spread of COVID-19 in 2020, the ratio briefly broke above 120. Silver has risen 147% in 2025. Last Friday, the gold-to-silver ratio was 69.674, a 3.1% decline week-over-week, but up 15.1% year-to-date. It accumulated a 33.4% drop in 2025 and a 13.0% increase in 2024.

It has been suggested that the gold-to-silver ratio could rise back to near 70 times or even higher. Platinum has gained 127% in 2025. Historically, one ounce of platinum could buy roughly 60 ounces of silver. Currently, one ounce of platinum buys only 27.311 ounces of silver, near an all-time low in relative valuation terms. This suggests that platinum is now historically cheap compared to silver.


Where to Begin

Markets are once again reassessing the probability of a U.S. interest rate hike this year. At the time of writing, the market sees a 33.7% chance of a 0.25% rate hike on July 29, up from 12.3% two weeks ago. The probability of a September hike jumped from 53.7% two weeks ago to 81.9% last Friday, while the December probability rose from 76% to 92.1%.

Spot gold traded above the $4,100 level for only about two days last week before falling back below it. At this stage, each time gold quickly recovers the $4,000 level, it reinforces bullish market confidence. However, under the pressure of potential rate hikes, daily closing levels need close monitoring. If gold closes below $4,000 on a given day with increased volume, and the subsequent two to three days show weak rebound momentum, a cautious technical outlook is warranted to guard against the risk of support turning into resistance, leading to deep corrections.

Newmont's second-quarter results showed earnings per share of $2.10, beating estimates of $1.98, though revenue slightly missed. Despite the sharp fall in gold prices, the company maintained strong cash flow. The stock declined post-earnings, likely due to profit-taking on good news. While the decline might be rational if the market views gold as entering a bear market, the company's current cash flow and earnings are real.

Historically, markets invested in stocks for earnings. Now, capital more often chases visions and crowded trades. The market prefers a potential $100 billion in future earnings ten years from now over a real $60 billion today.

While fundamental analysis is paramount, technical analysis must be respected. Gold and silver prices have declined from their year-to-date highs and, from a technical perspective, have entered a bear market. It is well-known that when precious metals enter a bear market, the cycle to return to a bull market is typically measured in years. Once a bear market is established, prices could continue to fall sharply, even if a geopolitical event like a peace deal between the U.S. and Iran were to occur.

Fortunately, copper prices have only corrected slightly more than 7% from their all-time high this year. Considering short, medium, and long-term perspectives, shifting from some precious metal assets to cash and copper-related equities may be a more suitable investment strategy. The market widely believes that copper mine projects are in short supply, with demand—driven by new energy and high-tech industries—expected to outpace mine supply from this year onwards for many years to come. It is believed that copper prices will eventually rise to at least $8-$10 per pound, though the timing within this year is uncertain.


Why Just 10 ASX 200 Shares?

Furthermore, the contract price for uranium, the fuel for nuclear power, has quietly approached $95 per pound, while the spot price remains steady around $85. For long-term, patient investors, holding a uranium investment trust on a buy-and-hold basis may offer a higher probability of success than holding a gold ETF.

It is a persistent view that the global economy is likely moving towards stagflation, leading to a bullish outlook for commodities and a bearish view on bonds. Previously, market attention on the U.S. debt issue was low due to strong economic growth. However, with the economic slowdown in recent years, the debt problem has become a market focus, the dollar has weakened, and commodity prices have risen. The May U.S. jobs data, on the surface, suggests the U.S. economy is accelerating. While this data likely contains some "water," it will take time to prove that the acceleration is temporary. Until clear evidence emerges, commodity prices, particularly gold, may remain under pressure.

"As a long-time expert in Western mining stocks, besides favoring precious metals mining shares, I have also been bullish on Western strategic and military metals exploration companies since last year," the analyst noted. "The former relies on market sentiment. Even if currency depreciation and de-dollarization have fundamental support, currencies don't fall in a straight line. Market sentiment oscillates between discussing rate cuts, debating the pace of cuts, and even considering rate hikes. By the second half of the year, rate cuts might be welcomed again. In contrast, strategic metals are backed by Western governments and capital. In the current global environment where politics often trumps all else, both sectors can thrive in the new 'Warring States' era."

Because the entire metals complex is rising, it is believed that if a metal bear market arrives, it is highly likely to affect all metals simultaneously, rather than just precious metals entering a bear market while strategic metals remain in a bull market. Indeed, strategic metal stocks have recently been affected by the Middle East situation. Fundamentally, even if the U.S. does raise rates, there is no reason to see strategic metals entering a bear market. If strategic metals do not enter a bear market, other metals might not retain their previous gains, but it does not mean they will enter a bear market.

Trying to predict the bottom for gold and silver prices is as difficult as trying to predict their top. For futures market participants, given the current uncertain environment, strategies like betting on a widening gold-to-silver ratio or platinum-to-silver ratio might be considered.

The primary reason for the current decline in gold and silver prices appears to be profit-taking after a significant rally, with the precious metals market having become overheated. Under the influence of major fundamental changes, such as the potential for oil prices to remain high for an extended period, the market chose to lock in profits. The widespread use of technical analysis tools accelerated the price decline. The market believes that even if inflation heats up into stagflation, the U.S. central bank will only raise rates, without considering voter sentiment or whether rate hikes are the correct remedy.

Historically, the first major gold bull market ran from $35 per ounce in 1970 to $850 per ounce in 1980—a highly volatile path, not a straight line. The 1973 OPEC oil embargo, which raised oil prices from $3 to $12 a barrel, and the 1979 Middle East conflict, which doubled oil prices to $39.5, along with the two energy crises, showed how geopolitics drove oil higher, oil drove inflation higher, and capital flowed into gold as a safe haven. The 1980 rate hike by the U.S. Federal Reserve successfully suppressed inflation and gold prices. However, it is crucial to note that if you had sold your gold in 1974, you would have missed the remainder of the bull market that ended in 1980. At that time, U.S. government debt was around 30% of GDP, allowing for a significant rate hike. Today, the debt-to-GDP ratio is over 120%. If the U.S. were to raise rates aggressively again, the gold bull market might not be killed, but the pressure on U.S. Treasuries would be far more severe.