During Tuesday's Asian session, the global precious metals market once again demonstrated strong momentum. Spot gold prices briefly broke through their previous high, reaching a historic high of $3,500 per ounce, bringing their year-to-date gain to approximately $875. Despite a slight decline, the price remained at a high of $3,493.47 per ounce. Spot silver continued to trade above the $40 mark, closing at $40.716 per ounce in the Asian session.
From a long-term perspective, the prices of gold and silver have more than doubled in the past three years, and silver has performed particularly well this year, with its growth exceeding that of gold. Behind this round of precious metals bull market is the deep resonance of multiple forces such as the Federal Reserve's interest rate cut expectations, geopolitical risks, asset allocation needs and industrial attribute drivers.
Core driver: Expectations of a Fed rate cut are rising, with Morgan Stanley suggesting a more dovish approach.
The core logic behind the current rally in precious metals stems from strong market expectations of a shift in the Federal Reserve's monetary policy. Recent analysis from Wall Street giant Morgan Stanley further reinforces this expectation. Federal Reserve Chairman Powell has previously cautiously left the door open to interest rate cuts in public, and the market generally expects the Fed to initiate rate cuts at this month's meeting. This Friday's US non-farm payroll report, if it further confirms signs of continued labor market weakness, will provide key data support for a rate cut.
After updating its economic forecasts, Morgan Stanley's interest rate strategy team noted that its baseline forecast calls for a 25 basis point rate cut at the Federal Reserve's meeting this month, followed by equal cuts at every other meeting until December 2026. However, after assessing various possible scenarios for the US economy, the firm believes that, based on a weighted probability analysis of various scenarios, the Fed's interest rate path could be more dovish than the baseline forecast. Specifically, Morgan Stanley anticipates that the federal funds rate could fall faster than currently expected between 2025 and 2026, potentially as low as 2.25%, although the rate could end slightly higher during this period, at around 2.75%.
To further examine the likelihood of interest rate paths, the Morgan Stanley team analyzed three alternative scenarios:
The first is fiscal stimulus (expanding government spending) and rising demand driven by "animal spirits" (10% probability) ;
The second possibility is that the Federal Reserve's increased tolerance for inflation coupled with "animal spirits" will drive demand (10% probability);
The third scenario is a mild recession caused by trade shocks and sudden economic disruptions (30% probability).
The report emphasizes that if recession risks are taken into account or the Federal Reserve takes a more moderate approach to inflation, traders may assign a higher probability to a "dovish" outcome, where the market pricing of the federal funds rate may be 100 basis points lower than the currently assumed final rate of 3.25%.
However, the current bond market prices the probability of this series of "dovish" events at only 20%. Morgan Stanley has given specific investment advice, including going long on US 5-year Treasury bonds and long-term bonds, engaging in "steepening trades" (short-end long + long-end short), and going long on January 2026 federal funds futures. The core logic lies in the confidence in the steepening of the yield curve - that is, long-term interest rates will rise faster than short-term interest rates.
Multiple factors are contributing to the rise: safe-haven demand, ETF holdings, and silver's dual attributes of "industrial + financial."
In addition to the core engine of Federal Reserve rate cut expectations, multiple market factors have further fueled the rally in gold and silver. From a safe-haven perspective, geopolitical conflicts, global economic volatility, and rising trade risks over the past three years have driven investors toward traditional safe-haven assets like gold and silver. Furthermore, former US President Trump's escalating attacks on the Federal Reserve this year have become a new risk trigger.
The silver market is even hotter in terms of funds. Investors continue to pour into silver ETFs, whose holdings increased for the seventh consecutive month in August. This has directly led to a continued decline in freely tradable silver inventories in the London market, highlighting the tight market supply situation. The lease rate, which reflects the short-term silver borrowing cost, remains high at around 2%, far higher than the normal level of close to zero, confirming the scarcity of silver from a financial perspective.
Meanwhile, a federal appeals court ruled last Friday that Trump's global tariffs, imposed under emergency legislation, were illegal. This ruling has not only heightened uncertainty for US importers but also delayed the delivery of the government's promised economic dividends, further strengthening the safe-haven value of precious metals. Notably, silver, thanks to its dual industrial and financial attributes, has significantly outperformed gold this year.
Summary: The logical closure of the precious metals bull market diverges from market expectations
Overall, the current strong performance in the precious metals market isn't driven by a single factor, but rather by a multi-factor logic: "Expectations of a Fed rate cut → Expectations of lower interest rates → Asset repricing," "Increasing safe-haven demand → Capital inflow → Tight supply-demand balance," and "Silver's industrial attributes → Supply shortage → Leading gains." However, market expectations remain divided: the bond market's 20% probability of a dovish Fed policy differs significantly from Morgan Stanley's assessment. Friday's US non-farm payroll report, the Fed's subsequent meeting decisions, and judicial decisions related to Trump's policies will serve as key factors in validating these expectations and influencing gold and silver prices.
