Near the National Day holiday on Monday, continued geopolitical conflicts pushed energy prices higher and reinforced expectations of Federal Reserve tightening, while disappointing U.S. Treasury auctions kept driving Treasury yields up; under the combined weight of multiple macro headwinds and pre-holiday fund exits, precious metals came under pressure and extended losses.

International gold prices widened their decline after the open and fell below the $4,200 mark to the lowest level since August, while the main Shanghai gold contract dropped 2.5% in the afternoon; international silver prices fell below $62, and the main Shanghai silver contract declined more than 4.5%.

Drivers

Precious metals performed weakly under the dual bearish pressure of macro-financial attributes and fund sentiment. At present, because the Middle East geopolitical situation has fallen into a stalemate, the military standoff between the United States and Iran in the Strait of Hormuz and between Saudi Arabia and the Houthi armed forces in the Red Sea continues to affect regional energy supply. In addition, mutual attacks by Russia and Ukraine on energy facilities have also hit diesel and other supplies. Although U.S. and Iranian officials have reopened a dialogue channel through the United Nations meeting, the outcome of the upcoming U.S. midterm elections in November may influence the negotiations, making substantive progress difficult for both sides. High energy prices have kept inflationary pressure rising across countries, and central banks in Europe and the United States have restarted rate hikes, with officials releasing hawkish signals. The market is further pricing in the impact of monetary tightening, and credit currencies such as the U.S. dollar have shown an appreciating trend.

Recently, the U.S. fixed-income market has come under pressure across the board, with several key indicators deteriorating. Although the Treasury expanded the execution ratio of its Treasury repurchase operations, the effect has not been ideal. The winning yields of Treasury auctions across multiple maturities have risen sharply, while overseas investors' willingness to participate has continued to weaken. The 10-year U.S. Treasury yield has now broken above 5% to a nearly 10-year high, and the simultaneous rise in real interest rates continues to weigh on precious metals.

As the National Day holiday approaches, domestic market trading has been quiet, and combined with the quarter-end effect, some funds are liquidating and leaving the market, which may intensify the decline. China's A-share market on Monday extended last week's low-volume decline, while holdings of several representative gold ETF funds at home and abroad have fallen back. With investors in a wait-and-see mood, short-term selling pressure has increased.

Outlook

Considering that during the National Day holiday the United States will densely release manufacturing and services PMI data as well as nonfarm payrolls data, and that the minutes of the September FOMC meeting will also be published before the market opens after the holiday. After the Federal Reserve restarted rate hikes, the market continues to expect another rate increase this year, while hoping to gain more guidance from inflation and other related economic indicators. If economic and employment data remain strong and monetary policy signals remain hawkish, the U.S. dollar and Treasury yields may rise further, putting pressure on precious metals. In addition, risks to the Middle East and energy supply remain difficult to ignore. U.S. and Iranian officials have now resumed contact, and if negotiations make progress and supply expectations improve, precious metals may quickly stop falling and rebound; however, if the conflict escalates or supply tightens, it may push up oil prices and inflation-hedging demand. In October, the U.S. Treasury still has multiple rounds of Treasury auctions, and if auction results are unsatisfactory, Treasury yields may continue to set new highs, increasing volatility risk in precious metals.

It is worth noting that entering October, the market will begin trading the impact of the U.S. midterm elections. Under the baseline scenario, if Congress is divided, it will constrain the Trump administration's fiscal expansion, thereby suppressing AI industry financing and economic growth. In the medium term, this may prompt the Federal Reserve to marginally ease monetary policy, and real interest rates and the U.S. dollar may also weaken.

Strategically, short-term selling pressure may push international gold prices back to $4,000-$4,100, while international silver prices may probe the $57-$58 range. To guard against potential volatility in overseas markets and concentrated post-holiday shocks triggered by geopolitical events, investors are advised to hold light positions through the holiday. If positions are held through the holiday, it is recommended to hedge risk through futures lock-up positions or by constructing an out-of-the-money option double-buy combination.

Risk warning

Further deterioration of Middle East geopolitical conflicts may lead the Federal Reserve to tighten monetary policy further.