Just a few weeks ago, the base case was that the Fed would keep rates unchanged.
Now Goldman Sachs and JPMorgan are preparing for the opposite.
Goldman has shifted its forecast to a 25 bp rate hike this week, while JPMorgan now expects hikes in both September and December.
Markets have moved even faster. The implied probability of a September rate hike is now around 87%.
What I find most interesting isn’t simply whether the Fed raises rates by 25 basis points on Wednesday.
Inflation remains stubborn, energy prices have added another layer of pressure, and the idea that rates would simply keep moving lower has suddenly become much harder to defend.
For gold and silver, the setup is more complicated than the simple equation of “higher rates = bearish for precious metals.”
If the Fed is tightening because inflationary pressures are returning while oil, geopolitical risk, and long-term yields remain elevated, then the reason behind the hike matters just as much as the hike itself.
Higher real yields and a stronger dollar can obviously put pressure on precious metals.
But a central bank being forced to tighten again because inflation refuses to disappear is not quite the same thing as monetary stability returning.
In just a few weeks, the market has moved from discussing rate cuts to pricing an 87% probability of a hike.
That shift in expectations may matter more than the 25 basis points themselves.
After Wednesday’s decision, I’ll be watching the market reaction closely.
Not just gold and silver, but also the dollar and long-term U.S. Treasury yields. Their reaction will probably tell us much more than the headline rate decision itself.
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