Last week, precious metals and global risk assets broadly weakened. Persistently elevated oil prices continued to weigh on commodity and equity valuations, and Friday's in-line CPI print alongside a hotter-than-expected core CPI amplified the bearish sentiment. Heading into the FOMC meeting, markets have almost fully priced in the start of a hiking cycle, with the probability of a September rate hike standing at roughly 85% and cumulative expectations through next June rising to at least three increases.
This extreme pricing suggests the short-term bearish pressures are nearing exhaustion. Using COMEX gold as a benchmark, we believe support for the December contract remains intact. At present, the risk premium embedded in crude oil has not been fully disproven, which continues to postpone the timing of a potential major upward move from the so-called peak inflation narrative. Additionally, supply-side disruptions among platinum group metals continue to fester. Stillwater, the only primary palladium mine in the US, has entered its second week of strikes, exacerbating supply concerns for PGMs. Meanwhile, silver remains tight due to disruptions in copper mine supply, making the supply contraction thesis for non-gold precious metals more robust than for gold itself.
This week is also a super central bank week, and we continue to advise controlling positions ahead of policy decisions and avoiding naked volatility selling, waiting instead for right-side trading opportunities.
Market Review
COMEX gold's most active December contract settled at $4,390 per ounce, down approximately 1.9% for the week and marking a third consecutive weekly decline. The week followed a winding path of early weakness, a Wednesday rebound, a Thursday slump, and a Friday reversal. On Tuesday, hawkish commentary from Fed Governor Barr and 10-year Treasury yields touching 4.8% drove gold roughly $90 lower from its weekly high of $4,441.64. A softer dollar on Wednesday fueled a rebound of about 1%. On Thursday, August PPI surging 5.4% year-over-year along with a European Central Bank rate hike triggered a near 2% selloff. On Friday, a hotter-than-expected core CPI print of 0.3% month-over-month initially slammed gold to around $4,330, near the low set on September 2, before prices quickly recovered and turned positive. Notably, the dollar index was largely flat for the week, suggesting pressure emanated mainly from real rates and rate hike expectations.
COMEX silver's December contract settled at $65.020 per ounce, down roughly 2.3% for the week and displaying significantly greater volatility than gold. Silver climbed nearly 3% midweek to $68.980 before reversing, then plunged 5.65% on Thursday, erasing all rebound gains. On Friday, it dipped to $63.150 during the CPI release before bouncing. Silver's weekly trajectory mirrored that of gold, though its industrial demand characteristics muted its performance during market pricing.
Super Central Bank Week Arrives as FOMC Hike Looks All but Certain
This week, the Fed's September 15-16 meeting alongside the Bank of Japan's policy decision constitutes a true super central bank week. Market pricing for a September hike is already near maximum, with CME FedWatch showing an 85-90% probability of a 25 basis point move and two hikes fully priced for this year. The so-called Fed whisperer, Nick Timiraos, noted markets no longer view September as a standalone meeting, with cumulative expectations rising to at least three hikes by next June. Since the 1990s, the Fed has executed only one one-and-done hike, and historical cycles have typically lasted at least a year. Furthermore, Warsh publicly stated in July that he does not believe the Fed excels at fine-tuning, and last month remarked there is not much evidence that borrowing conditions are restraining economic activity. If that rationale underpins a hike, markets would inevitably question where the restrictive level lies. Therefore, once this hike lands, it will likely confirm the start of a broader tightening cycle rather than a single adjustment. Wednesday's decision is already fully priced, but the focus will be on the dot plot's implied terminal rate and Warsh's press conference responses regarding the future path.
Offsetting the cyclical narrative is the visible politicization of constraints. Trump stated on the 13th that the US should pay the world's lowest interest rates, while Hassett noted it is important for the Fed to maintain the status quo before the election. White House pressure could imply a genuine political ceiling on the cycle's peak. Overseas central banks are reinforcing the tightening environment. The ECB raised rates by 25 basis points on September 10, its second hike this year, and lifted inflation forecasts. A survey of 52 Japan watchers conducted by Jin10 showed 100% expect a rate hike next week and roughly 93% anticipate another by January, signaling accelerated policy normalization. Global bond markets are suffering concurrently, with 10-year Treasury yields near 4.97% and the 30-year briefly breaking above 5.42%, the highest since 2007. Australia's 10-year yield reached 5.38%, its strongest since May 2011.
Confirmation of Simultaneous Peak in Inflation and Hikes Requires Patience
Confirmation that inflation and rate hikes have peaked together requires more time. The postponed Al-Salalah regional meeting and temporary shutdown of a Saudi oil pipeline mean the energy-driven inflationary backdrop will not fade quickly. This suggests the macro combination of inflation and rate expectations falling in tandem, which would ignite a major gold rally, is currently absent. We refrain from making strong judgments on oil prices themselves, but one point is clear: the absence of conditions for a major upward move justifies avoiding chasing highs, not turning bearish.
The fundamental pillar supporting a non-bearish stance is the persistent deterioration of the US debt situation. Total US government debt now surpasses $40 trillion, with both 10-year and 30-year Treasury yields posting record highs. The interest burden continues to mount. Although the Treasury expanded its buyback program for 10-20 year notes to $6 billion on September 9, actual execution reached just $5.187 billion, confirming weaker demand that could push holding returns higher. The critical dynamic for precious metals lies in the self-reinforcing contradiction of US debt: once a rate hiking cycle is confirmed, the rolling interest payment pressure on existing debt rises in parallel, deepening fiscal constraints and eroding dollar credibility. The deeper the tightening, the greater gold's value as a debt alternative. This distinguishes the current cycle from previous ones.
Beyond the relatively stable central bank demand detailed in our monthly report, the tape also confirms fundamentals have not materially deteriorated. When core CPI beat expectations on September 11 and September hike odds surged above 90%, gold initially dipped during the session before reversing higher. For the active COMEX GC12 contract, the 4-hour closing low during that worst-case macro backdrop was higher than the intraday low carved out on September 2.
In summary, the coexistence of an absent catalyst for a major rally and intact fundamentals dictates that precious metals will trade in a broad range rather than decisively break down. Upside is capped by rate pressures following confirmation of the tightening cycle, while downside is supported by US debt credit impairment and central bank gold purchases. We maintain a cautious but not bearish stance, managing positions and awaiting right-side signals once the FOMC decision lands.
Supply Disruptions Emerge in Precious Metals, Watch Non-Gold Contraction
The most dramatic supply-side event of the year has emerged among platinum group metals. According to public sources such as SMM, approximately 420 workers at Stillwater's East Mine and Columbus metallurgical complex in Montana initiated a strike on September 3, now entering its second week with no signs of resolution. These facilities represent the United States' only primary palladium mine and only PGM smelter and refinery. Stillwater East produced 76,334 ounces in the first half (2E basis), accounting for 55% of the company's US operations. Given the long-term decline in PGM prices, the company stated its US business is near breakeven, with negative free cash flow in the first half. CEO Stewart warned that if reform plans face obstacles, the risk of the strike escalating to a shutdown is real. On the first day of the strike, palladium surged 4.92% to $1,441.
Note that institutions initially projected a modest palladium surplus for 2026. Despite that, the US Mint's release of 5,000 2026-W Palladium Eagle coins on September 3 saw 4,778 coins sold within minutes. Additionally, according to the Silver Institute, the annual supply-demand deficit for silver may extend to a sixth consecutive year. Combined with ongoing disruptions in copper and zinc mine supply, conditions are ripe for a potential silver squeeze, though market pricing of the deficit remains less explicit than for PGMs. We continue to believe physical demand for gold may spill over this year, providing clear bottom-fishing support for non-gold precious metals like silver, platinum, and palladium.
Key Takeaways
Looking ahead, this week's core issue for precious metals is not direction but timing. Upward pressure stems from the super central bank week and confirmation of the tightening cycle's rate burden, while downward support is anchored by US debt credit impairment, central bank gold demand, and supply contractions in non-gold metals. Prices will likely remain in a high-volatility, rangebound pattern with downward bias, and conditions for a decisive trend reversal are not yet sufficient.
Specifically, three threads deserve close attention. The first is the expectation gap in policy paths. September's hike is already largely priced; the variable that truly drives volatility is the terminal rate implied by the dot plot and Warsh's definition of restrictive levels. Should the pace be limited to within two hikes this cycle, the tightening premium could quickly unwind after the decision. However, if markets ultimately price a higher neutral rate, the premium may keep rising. Meanwhile, watch for political constraints, as the tug-of-war between White House calls for lower rates and Fed independence implies a genuine ceiling on this cycle's peak.
The second thread is the timing of the inflation narrative's retreat. With oil risk premiums unrefuted and the energy backdrop intact, the combination of inflation and hikes peaking simultaneously cannot materialize in the short term. The absence of a major rally catalyst is our core reason for not chasing highs. Yet, as long as oil prices do not spiral further upward, current pricing is near the edge of bearish exhaustion. Support for COMEX gold's December contract remains valid, and investors should avoid selling naked volatility or taking outright short positions at these lows.
The third thread is event-driven supply premiums. If the Stillwater strike persists or deadlock spreads to the East Boulder mine, palladium and platinum policy premiums and squeeze risk will intensify. Combined with silver tightness from copper supply disruptions and spillover physical palladium investment demand, the supply contraction narrative for non-gold metals holds more weight than for gold. Gold-silver and platinum-palladium ratios offer phased mean-reversion opportunities and can serve as portfolio hedge indicators.
On positioning, ahead of the BOJ and Fed decisions this week, prioritize position control and liquidity preservation. Avoid naked volatility selling and await right-side signals after the FOMC and dot plot dust settles. Directionally, maintain a cautious but not bearish stance. Aggressive traders could attempt light longs near the COMEX gold December contract's key support at $4,300 with strict stops, while conservative investors should wait for clarity on the hiking cycle's height before entering. On the spread front, watch for non-gold precious metals outperforming gold.