- The latest policy analysis from the Chicago Mercantile Exchange Group (CME) indicates that the renewed expectations of global central bank interest rate hikes in the short term will continue to pressure the medium and short-term prices of non-yielding assets like gold and silver.
- The year-on-year growth rate of the U.S. core Personal Consumption Expenditure (PCE) price index has rebounded from 2.8% to 3.3%, and the forward yield curves of major global economies suggest that monetary policy has fully shifted towards restrictive pricing.
- In the long term, major economies such as the U.S., Germany, and France maintain high budget deficits of 5% to 6% of GDP during non-recession periods. Concerns over credit due to uncontrolled fiscal discipline may become a decisive factor in the long-term trend of precious metals.
Core Inflation Rebound Reshapes Fed Rate Hike Expectations
After the U.S. core PCE year-on-year growth rate rebounded to 3.3%, the market logic underwent a fundamental restructuring. Pricing of federal funds futures and Secured Overnight Financing Rate (SOFR) futures indicates that the market has completely shifted from a previous expectation of a 50 basis point rate cut over the next two years to a marginal pricing of a 50 basis point rate hike. Strong economic fundamentals and sticky inflation have raised short-term interest rate expectations, directly increasing the opportunity cost of holding gold and silver, leading to a significant pullback in precious metals from their historical highs in late January.
Global Central Bank Restrictive Pricing Resonance
The policies of major global central banks are shifting from expectations of easing to a resonant tightening pace. The Bank of Japan (BOJ), European Central Bank (ECB), Reserve Bank of Australia (RBA), and Norges Bank have all taken rate hike actions this year. This global restrictive policy environment is compensating for previously underpriced inflation risks in the market, causing long-term government bond yields in countries like Japan, France, and the UK to rise significantly, making the pressure on the global bond market more apparent.
Expansive Fiscal Budget Deficits Provide Long-term Support
Against the backdrop of major global economies not falling into severe recession, expansive fiscal policies continue, with the U.S. budget deficit ratio to GDP remaining between 5% and 6%. CME believes that sustained high deficits will have a dual transmission effect. In the short term, large-scale debt issuance will suppress gold prices by pushing up sovereign bond yields, but in the long term, if market confidence in public fiscal sustainability is lost, gold's reserve attribute as a decentralized safe-haven asset may regain strategic support.
Equity Market Volatility as a Policy Shift Indicator
The risk appetite of the stock market has become a key leading indicator for observing central bank policy turning points. As long as equity risk assets maintain an upward trend, financial conditions are unlikely to tighten substantially, thereby increasing the risks of core inflation and resource constraints, which suppress both government bonds and precious metals. Conversely, if the stock market experiences an unexpected valuation correction that suppresses economic growth, it may force global central banks to compromise back towards easing policies, at which point the precious metals market may usher in a new liquidity-driven rally.
