Since the start of August, the precious metals market has seen a dramatic shift, with both gold and silver reversing their earlier half-year downward trajectory. Within less than a month, silver rebounded from its yearly low of 13,500 yuan to near 17,000 yuan, while gold climbed from its lowest point of 865 yuan to around 1,000 yuan. We will analyze the key drivers behind this recent rally and project potential future scenarios.
The rapid rebound in precious metals is largely attributed to the market identifying operational constraints and disruptions in the Fed's policy execution, pricing in potential concessions from the central bank. The core of dollar credit lies in its intrinsic purchasing power and external solvency. As a fiat and sovereign currency, the dollar's foundation rests on government credit and sovereign capability, which is the root of the U.S. debt issue—government spending is based on economic equilibrium and expenditure needs rather than revenue.
Recent polls show former President Trump's approval rating has slipped to 33%. In the short-to-medium term, Trump needs stable employment data and a steady asset price environment to secure higher approval ratings ahead of the November midterm elections. Conversely, the Fed prioritizes dollar credit and long-term U.S. interests, focusing on fighting inflation, tightening money supply and government debt, and bolstering dollar credibility.
Since June, the White House has repeatedly attempted to remove Fed hawkish governor Cook, citing alleged falsification of primary residence information during her 2021 home purchase in Atlanta. This is widely viewed as an attempt to undermine the Fed's independence. On July 30, Trump stated that Warsh wanted to see interest rates decline. The Wall Street Journal reported on August 6 that Trump had multiple phone calls with Warsh since he became Fed Chair, during which Warsh expressed a positive outlook on the economy. On August 7, Hassett suggested it would be normal for Trump to consult Warsh on employment data. Given that employment data since July has been severely disappointing, Trump's discussions with Warsh on jobs data clearly signal an expectation for Warsh to deliver on rate cut promises, while Warsh's positive economic remarks serve as a polite refusal.
Two consecutive months of significantly weaker-than-expected non-farm payrolls have cooled market inflation expectations, which is the core reason precious metals have shed the pressure of rate hike expectations. Additionally, the loosening of inflation data in June played a role, undermining the factual basis for the Fed's aggressive hawkish stance seen in the first half of the year. Specifically, June CPI rose 3.5% year-over-year, below the expected 3.8% and prior 4.2%. Core CPI increased 2.6% year-over-year, versus the 2.8% expected and 2.9% prior. This marked the first month-on-month decline in six years, primarily driven by oil prices. U.S. Q2 GDP grew at an annualized rate of 1.5%, missing expectations. June non-farm payrolls added just 57,000 jobs, only half of market forecasts, while the unemployment rate unexpectedly fell to its lowest in a year. July non-farm payrolls surprisingly decreased by 23,000, against expectations for an 80,000 gain—a key signal of a turn negative. U.S. July retail sales fell 0.6% month-over-month, following a 0.2% rise previously, as consumers reduced purchases of autos and online goods, marking the largest drop in a year.
Since late July, the Treasury's proactive actions contrast sharply with the Fed's unusual silence. On July 31, media captured Treasury Secretary Bessent's notepad with a to-do item: "Buy Japanese Yen (JPY) $5-10 bil." The joint U.S.-Japan intervention quickly strengthened the yen from 164 to 157, marking the first U.S. yen purchase since 1998 and the first coordinated intervention in 15 years since 2011. On August 19, Bessent announced an expansion of long-term Treasury buyback operations, raising the single-operation cap from $2 billion to at least $4 billion, effective September 9, 2026. On August 24, reports citing two senior Treasury officials indicated the department may use nearly $1 trillion from the Treasury General Account (TGA) to fund the expanded buyback program.
In summary, August's precious metals rebound stems from economic data that no longer supports the Fed's hawkish, strong-dollar stance. Political incentives drive the Treasury to act proactively to stabilize economic expectations, constraining the Fed's efforts to enforce fiscal and monetary discipline. We will monitor the Fed Chair's formal speech at the central bank symposium on Friday. If it contains significant anti-inflation rhetoric, it could weigh on precious metals prices. However, given the trend of rising energy, shipping, and food prices, inflation expectations may still push silver to continue this rebound. Market participants remain hopeful for policy easing driven by midterm election dynamics. Should precious metals see a sharp pullback at the central bank symposium, there remains a speculative opportunity to buy at lower levels.
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