September Rate Hike Fears Deepen Precious Metals Correction

Precious metals extended their recent correction overnight as higher bond yields, rising oil prices and growing expectations of a Federal Reserve rate hike continued to pressure the sector. Markets remain focused on the Fed's September meeting following hawkish commentary from Chair Kevin Warsh, which has seen rate hike expectations rise materially. 

Daily Performance 

• Gold: Fell approximately 2.8% to around USD $4,328oz or AUD $6,056oz 

• Silver: Underperformed, declining roughly 3.8% to around $66.1oz or AUD $89.8oz 

• Platinum: Weakened by around 3% to USD $1,741oz, broadly following the precious metals complex lower.  

Key Drivers 

• Fed expectations: Markets are increasingly pricing the risk of a September rate hike (67% probability), with higher rates and real yields raising the opportunity cost of holding non-yielding assets such as gold. 

• Bond yields: US 10-year real yields have pushed higher in recent days (2.44%), weighing on bullion sentiment. 

• Oil surge: Brent crude remains near USD $92/bbl amid ongoing US-Iran tensions, fuelling inflation concerns and supporting a stronger USD (USD strength index or DXY approaching 100).  

This week's US labour market data, culminating in Friday's Non-Farm Payrolls release, remains the key near-term catalyst. A stronger-than-expected report would likely reinforce the Fed's hawkish stance, while any downside surprise could provide relief for precious metals after the recent sell-off. Central bank buying and ETF flows remain constructive longer-term pillars for the sector despite ongoing macro headwinds. 

Luke Tyler
Senior Analyst, ABC Bullion

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