The expansion of military conflicts across the Middle East on Friday pushed international oil prices to a yearly high of $109 per barrel, while U.S. PPI inflation exceeded expectations on the back of surging energy costs. This has reinforced market bets on further Federal Reserve rate hikes, with tightening concerns weighing heavily on risk appetite. U.S. Treasury yields continued to hit fresh highs, equities sold off, and both base and precious metals suffered steep losses due to unfavorable financial conditions. International gold prices struggled to hold the $4,300 level during Asian trading hours, while the SHFE gold main contract briefly fell over 2% before paring losses. Overnight, silver plunged more than 5% internationally, dragging the SHFE silver main contract down as much as 6% to a three-week low of 15,356 yuan per kilogram.

The intensifying geopolitical tensions have driven energy prices and inflation pressures higher, stoking expectations of tighter monetary policy, while record-high Treasury yields have dampened market sentiment. On Thursday, the U.S. Treasury announced bond buybacks of up to $6 billion across 10- to 20-year maturities—triple the previous single-operation cap of $2 billion and above the "at least $4 billion" guidance issued on August 19. However, this fell short of Wall Street's optimistic expectations of $10 billion, and instead of rallying, Treasuries declined following the operation, with 10-year yields climbing to near three-year highs. Treasury Secretary Bessent reiterated that the government cannot alter the "equilibrium" price of U.S. debt, aiming only to moderate market volatility—a stance that may further undermine confidence. Since mid-August, global bond markets have experienced synchronized selling, with long-end yields persistently hitting new highs, reflecting concerns over inflation anchors, fiscal sustainability, and risk premiums stemming from government and corporate financing competition. In the near term, worries over sovereign credit risk premiums and policy uncertainty require coordinated intervention from the Treasury and central bank, potentially through outright bond purchases to inject liquidity. Over the medium to long term, however, debt resolution demands improved fiscal discipline and support for transitioning AI industries from infrastructure toward applications to offset consumer spending weakness and underpin economic fundamentals.

Beyond the long-end bond crisis, escalating Middle East conflicts have driven international oil prices above the $100 threshold to yearly peaks, with high inflation now "forcing" central banks worldwide to tighten policy. Ahead of the U.S. CPI report—a decisive input for the Fed's September decision—August PPI rose 5.4% year-over-year, exceeding the 5.3% consensus and accelerating sharply from July's 4.7%. Diesel prices jumped 24.1% month-over-month, contributing over one-third of the increase in final-demand goods prices, making it the most prominent single driver this cycle, alongside gains in gasoline, jet fuel, and heating oil. The hotter-than-expected PPI has boosted market pricing for a September rate hike to a 70% probability. Fed Chair Warsh's unexpectedly hawkish tone in late August likely aims to signal that the Fed remains vigilant on inflation, preventing markets from prematurely concluding it has deprioritized price stability. The Fed retains policy flexibility, with the outcome depending on CPI data; if readings remain flat or come in below expectations, September could still see no action.

While precious metals face downward pressure from the hawkish Fed, demand fundamentals have yet to show meaningful improvement. On one hand, central bank gold purchases by China and Poland continue to accelerate, and August saw the second-largest monthly inflow on record for gold ETFs, which had been a key driver of the earlier rally. On the other hand, global gold demand in the first half of 2026 weakened significantly due to softness in jewelry consumption and physical investment, while India, a major consumer, has maintained import restrictions on gold and silver. As the traditional "golden September and silver October" consumption season approaches, consumer willingness may be tempered by high inflation and slowing income growth. Meanwhile, speculative interest has concentrated in the highly volatile energy and chemical sectors. Given weak demand fundamentals and limited market attention, upside for precious metals remains constrained.

Looking ahead, central bank buying and allocation demand continue to underpin gold prices, but Fed rate hike expectations lifting real Treasury yields pose significant headwinds. The key variables are the impact of escalating Middle East tensions on energy-driven inflation and the upcoming U.S. CPI reading. Given the wide margin of error in forecasts amid multi-party uncertainty, investors are advised to wait for confirmation from the right-side signals before positioning. If the Fed proceeds with a hike, it could trigger a "sell-the-news" relief rally; if it holds steady, credibility concerns may intensify, potentially aiding a rebound in precious metals. In the near term, until macro uncertainties are resolved, gold and silver prices are likely to remain under pressure. Gold is testing support at $4,300 (940 yuan), with further downside risk toward $4,200 (910 yuan). Silver is expected to exhibit greater volatility, with attention on support near $60–61.

Risk Warning: Escalating Middle East conflicts could lead to energy supply disruptions, and a broad-based Fed rate hike strengthening the U.S. dollar would exert additional downward pressure on precious metals.