On Wednesday, the U.S. Department of the Treasury announced a significant expansion of liquidity support for long-term bonds, at least doubling the buyback scale for 10- to 30-year U.S. Treasuries. The market widely views this move as direct intervention to suppress long-end financing costs. The logic mirrors historical Operation Twist, reshaping the yield curve by purchasing long-term debt and swapping it for short-term debt. Spurred by this news, long-end Treasury yields promptly retreated, with the 30-year and 10-year yields dipping to 5.18% and 4.65%, respectively, while short-end rates moved inversely higher.
This fiscal easing signal perfectly offsets the hawkish tone recently struck by the Federal Reserve. Monetary policy minutes released the same day showed that several policymakers remain vigilant about the inflation outlook and discussed the possibility of further rate hikes if necessary. However, bond market traders clearly favor the Treasury's operational guidance. The implied probability of a September rate hike in federal funds futures has plummeted from previous highs to around 36%. This repricing of policy expectations has provided strong upward momentum for non-yielding assets.
Driven by the dual tailwinds of falling long-term bond yields and the U.S. dollar sliding to a three-month low, the precious metals sector experienced an explosive rally. Spot gold surged 4.36% in a single day, closing at $4,522.68 per ounce, while spot silver jumped 5.82% to $66.996 per ounce. Platinum and palladium also performed strongly; spot platinum soared 6.07% to $1,817.45 per ounce, hitting an intraday high of $1,820.50, and spot palladium rose 3.74% to $1,337.15 per ounce.
From a technical perspective, gold futures are facing tests across multiple key moving averages. Market attention is focused on the 50-week moving average at $4,540 and the 200-day moving average at $4,625. Analysts point out that only a Friday closing price that effectively holds above these resistance levels can further confirm the sustainability of buying interest. Meanwhile, the $4,500 psychological mark has been breached. If geopolitical tensions ease and inflation data aligns subsequently, expectations for a retest of the $5,000 milestone by year-end will intensify, while $4,200 below is viewed as a crucial defensive support level.
In stark contrast to the precious metals frenzy, base industrial metals faced broad pressure. Copper, nickel, zinc, and aluminum fell 0.85%, 1.62%, 0.80%, and 0.66%, respectively, as capital clearly favored assets with store-of-value attributes. Weakening aluminum prices were also directly weighed down by tariff policy expectations. Reports indicate that the U.S. is considering reducing tariffs on Canadian metals from 50% to around 25% to align with tax rates for other countries. Given that Canada accounts for half of U.S. aluminum imports, the tariff reduction means cheaper North American aluminum sources will flood the market.
This potential policy shift quickly triggered severe volatility in the capital markets, leading to a sharp divergence in the stock prices of related aluminum companies. Toronto-listed Algoma Steel surged 24%, while U.S. domestic players Century Aluminum and Nucor plummeted 11% and 8.9%, respectively. Currently, aluminum inventories at the London Metal Exchange have slumped to their lowest levels in decades, with available spot supplies being extremely scarce. In this supply environment lacking a buffer, the entry of cheaper Canadian aluminum will have a profound impact on the spot market. Market participants are closely monitoring the final implementation of the tariff adjustments this Friday, as well as the policy tone set by the Fed Chair at the Jackson Hole symposium next week.
