In the medium to long term, the uncertainty of the US economy is increasing, the expectation of interest rate cuts by the Fed is rising, the actual interest rate is falling, which directly reduces the holding cost of precious metals, and the weakening of the US dollar credit has led to the expectation of US dollar depreciation. With the support of multiple factors, precious metals may maintain a bias to the upside for a long time.

Multiple factors, including the impact of the event, the Fed's shift in its medium-term monetary policy, and the long-term global central bank gold purchases, have led to a very strong upward momentum in precious metals. In the medium and long term, the uncertainty of the US economy has increased, the expectation of US interest rate cuts has heated up, the decline in real interest rates has directly reduced the holding cost of precious metals, and the weakening of the US dollar credit has led to expectations of US dollar depreciation. With the support of multiple factors, precious metals may maintain a bias towards the upside for a long time.

Market investment risk-aversion sentiment is rising

On October 10th, Eastern Time, the US announced that in response to China's export controls on rare earths and other items, it would impose a 100% tariff on Chinese exports and implement export controls on all key software. On October 12th, the Ministry of Commerce's spokesperson answered journalists' questions about China's recent related economic and trade policy measures, stating that on October 9th, China released measures for the export control of rare earths and other items. This is a normal behavior of the Chinese government to improve its own export control system in accordance with laws and regulations. China urges the US to correct its mistakes as soon as possible, to lead with the important consensus reached by the two heads of state's phone call, to maintain the hard-won achievements of the consultations, to continue to play the role of the China-US Economic and Trade Consultation Mechanism, to resolve each other's concerns through dialogue on the basis of mutual respect and equal consultation, to properly manage differences, and to maintain the stable, healthy, and sustainable development of China-US economic and trade relations. If the US insists on its own way, China will also inevitably take corresponding measures to safeguard its own legitimate rights and interests.

Since the beginning of this year, Trump's policy agenda has been advancing in turn in terms of government cuts, immigrant deportations, fiscal bills, promoting peace negotiations between Russia and Ukraine and between Israel and Gaza, pressuring the Fed to cut interest rates, and trade negotiations with various countries. Recently, Trump has made some progress in both government cuts and pressuring the Fed to cut interest rates, and the government is currently in a "shut-down" period, which has re-focused attention on trade negotiations with various countries. In the short term, with the backdrop of rising tariff risks, market risk aversion has increased, and the volatility of equity assets will be amplified, and safe-haven assets still have allocation value.

The U.S. government shutdown continues

The U.S. government is currently facing a potential “shutdown” situation, and there is yet a highly feasible conclusion plan. On October 9th, Eastern Time, the U.S. Senate failed to pass any of the seven temporary spending bills. Among them, the bill proposed by Republicans and passed by the House of Representatives only received 54 votes in favor and 45 votes against, once again falling short of the 60 votes needed for approval. The bill supported by the Democrats also failed, with a result of 47 votes in favor and 50 votes against.

Even though the U.S. Republicans control both houses of Congress, they need at least a few Democratic supporters in the Senate to reach the 60 votes needed to approve a spending bill.

At present, the U.S. government is still in a "shutdown" state, which has become the fourth longest government "shutdown" event in U.S. history. If the government does not return to normal operation by October 15, it will affect the payment of military and federal employee salaries, and the political pressure that Congress members are facing is gradually increasing.

The two parties are deadlocked over the omnibus spending bill, the resulting impasse has forced hundreds of thousands of federal employees to take without pay. The key economic data in the United States has also been in a "vacuum" with the suspension of some public services. The many data that the Fed relies on, such as the October employment report, failed to be released on time on October 3, and the CPI data could not be published on schedule.

In the short term, the U.S. government's "shutdown" situation may continue, and the uncertainty of the financial market is further intensified. In this case, precious metals may still be the harbor of choice for risk-averting capital.

Policy uncertainty at the Fed increases

Recently, due to the "shutdown" of the U.S. government, the data that the Federal Reserve focuses on, such as non-farm and CPI, have been delayed, which has significantly increased the difficulty for the market to judge the direction of the U.S. economy and the policy path of the Federal Reserve. On October 10th, Eastern Time, according to a media report quoting an official from the White House, the Bureau of Labor Statistics (BLS), an agency under the U.S. Department of Labor, will "immediately restart" the statistical work for the September CPI data, which will be released at 8:30 a.m. Eastern Time on October 24th.

In addition, trade frictions are expected to escalate, and the impact of tariffs on US inflation remains highly uncertain, so the possibility of a resurgence in inflation cannot be ruled out.

The Federal Reserve is set to hold its interest rate decision from October 28th to 29th, and there is a significant divide among Fed officials regarding the future path of monetary policy. Recently, Fed Governor Brainard publicly stated that the Fed should exercise caution as it further adjusts its policy stance, given that the pace of price increases remains too rapid. However, the Fed's "three-person" William Dudley, the president of the New York Fed, has a different view. He believes that if inflation stabilizes around 3% and the unemployment rate rises slightly, he supports further rate cuts this year to prevent a sharp slowdown in labor market growth. He believes that although the US economy has not yet fallen into a recession and inflation risks have eased, it is still necessary to remain vigilant.

Currently, the risk of unemployment in the United States may be greater than the risk of inflation, and the Federal Reserve tends to lower interest rates. It is expected that the Federal Reserve will lower interest rates by 25 basis points at the interest rate meetings in October and December, and there is still a possibility of 2 rate cuts in the first half of next year, and the subsequent reduction in interest rates will depend more on the data performance. Against the backdrop of significantly higher tariff rates and tightening immigration policies, both employment and inflation risks exist. If the subsequent high tariffs lead to inflation risks exceeding employment risks, the Federal Reserve could still stop cutting rates.

The CME FedWatch tool shows that as of October 11th, investors expect a 98.3% chance of a 25 basis point interest rate cut by the Federal Reserve in October and a 91.7% chance of a 25 basis point cut in December.

To sum up, in the short term, the warming of trade friction, coupled with the US government's "shutdown" state, has significantly increased the difficulty of the market in judging the direction of the economy and the policy path of the Fed, which has intensified market risks and led to a high level of investment risk-aversion. In addition, the uncertainty of the US economy continues to increase, the expectation of the Fed's interest rate cut continues to heat up, and the actual interest rate tends to decline. With the support of multiple factors such as macroeconomic growth slowdown, monetary policy easing, and geopolitical situation, the precious metal market may maintain a positive trend for a long time.

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