Precious metals are likely to continue trading within a range during the third quarter of 2026.

Key Forecasts by Metal

Gold: Expected to trade with a stronger bias within a range, serving as the sector's benchmark anchor.

Silver: Anticipated to exhibit high volatility and high price elasticity.

Platinum: Likely to trade with a stronger bias, showing more potential for upward movement.

Palladium: Expected to show weak rebound momentum, with an overall weak bias.

Primary Market Themes for the Quarter

The third quarter's most important trading themes are threefold. First, whether the Federal Reserve's post-June policy stance and expectations for a September rate cut can rekindle market optimism. Second, whether the direction of US real interest rates and the US dollar will shift from being a temporary headwind in Q2 to a renewed weakening trend. Third, whether geopolitical risks and political uncertainty ahead of the US midterm elections will re-elevate the risk premium for gold.

If two or more of these factors turn supportive, the probability of gold testing higher price levels in Q3 increases significantly. Conversely, if they do not, gold is more likely to maintain its high-range consolidation and wait for a potential move in the fourth quarter.

Metal-Specific Drivers and Allocation Strategy

Gold is the core foundational holding for the sector, with its performance primarily driven by the macro environment and central bank purchases, making it the main allocation axis.

Silver is a high-beta enhancer, benefiting from both financial and industrial attributes, suitable for tactical additions to boost portfolio returns.

Platinum is a target for alpha generation, with potential for structural gains based on supply constraints and an annual supply-demand deficit.

Palladium serves as a risk hedge; its medium-term outlook is pressured by automotive electrification and increased recycling, making it suitable for tactical hedging opportunities.

The third-quarter performance for precious metals will not be uniform. With gold providing a stable valuation anchor, silver and platinum can seek relative outperformance based on their own fundamentals. Palladium can be used for short-side hedging against macro uncertainty to dampen overall portfolio volatility.

First Theme: The Path of Interest Rates

The core question is whether the Federal Reserve's post-June policy communication and expectations for a September rate cut can regain momentum. The impact of Fed rate expectations on gold prices is essentially about the discount rate applied to gold.

The June FOMC meeting held the federal funds rate steady at 3.5%-3.75% but delivered a distinctly hawkish signal. Chaired for the first time by the new Chair, the meeting statement was significantly streamlined, de-emphasizing the previous data-dependent framework while reinforcing the core judgment of persistently high inflation and removing forward guidance with a dovish tilt. The policy focus has shifted from "when to cut rates" to "whether further policy tightening is necessary." Based on member votes and projections, the number of officials seeing a need for a rate hike this year rose to nine. The accompanying Summary of Economic Projections (SEP) was also revised upward across the board, with the 2026 PCE inflation forecast raised to 3.6% and the core PCE forecast to 3.3%. The median federal funds rate projections for 2026-2028 were also raised, signaling the Fed's intent to maintain a relatively tight monetary policy environment for an extended period.

Since March, escalating Middle East tensions and surging oil prices triggered a directional reversal in market rate expectations, shifting from expectations of steady rates to pricing in hikes within the year. This strengthening hike expectation was the dominant theme in Q2 and is now largely priced in. The third quarter is expected to see a correction and moderation of these excessive hike expectations.

The primary factor pressuring gold in Q2 was not high interest rates per se, but the systematic upward revision of market rate expectations, which sharply increased gold's forward discount rate. By symmetrical logic, the core driver for a gold price recovery in Q3 is likely not a decline in real rates, but a systematic downward revision of rate expectations, leading to a gradual decline in gold's discount rate.

It is crucial to distinguish that this expected downward revision in rates represents a cooling-off correction from previously overheated hike expectations, not an immediate policy pivot toward easing. Even if market expectations shift from "more hikes are coming" to "no more hikes this year," it would only alleviate valuation pressure on gold, not create a powerful rally driver. Therefore, near-term upside for gold is limited, making a decisive break above the core resistance zone of 1000-1050 RMB/gram (corresponding to $4700-$4800/oz for London gold) unlikely.

Key risks to monitor include the late July and September FOMC meetings, as well as marginal changes in consecutive inflation and employment data from July-August, to confirm any trend weakening in fundamentals.

Second Theme: Real Rates and the Dollar

The question is whether US real interest rates and the dollar's direction will shift from being a temporary headwind in Q2 to a renewed weakening trend. Based on the frameworks that "real rates determine gold's direction" and the "three-level relationship between the US dollar index and gold," gold's core macro headwind in Q2 came from the combined strength of real rates and the dollar. The 10-year TIPS real yield rose from 1.72% in early March to a peak of 2.26% in early July, while the dollar index climbed from below 98 to a high of 101.8. Their simultaneous strength directly compressed the valuation of non-yielding gold.

From a pricing perspective, rising real rates increase the opportunity cost of holding gold. A stronger dollar makes dollar-denominated gold more expensive for non-US buyers, weakening marginal global demand and persistently pressuring prices. This explains why gold's safe-haven performance in Q2 was significantly weaker than historical norms despite frequent geopolitical risks.

Since Q2, gold pricing has reverted to the traditional non-yielding asset framework of "real rates + dollar." Geopolitical conflicts no longer directly drive gold prices higher; they only provide sustained support when they influence inflation expectations via oil prices, thereby altering the Fed's policy path.

By symmetrical logic, the strength in real rates and the dollar is likely to weaken marginally in Q3. As per the first theme, downward nominal rate expectations coupled with cooling CPI due to falling oil prices could cause real rates to fall faster than nominal rates. The Q2 dollar strength was driven not by a vastly improved US economic outlook but by safe-haven capital flows, a dynamic that is now loosening with signs of capital outflow from dollar assets, putting short-term pressure on the dollar. Therefore, gold's core Q3 logic is not a sharp decline in real rates or the dollar, but a dissipation of their upward momentum and a gradual weakening of previous headwinds.

If inflation peaks and recedes while hike expectations cool marginally, nominal rates may fall faster than inflation expectations, pulling real rates down from their highs. Combined with a faltering, potentially weaker dollar, gold would experience a dual relief. A Q3 recovery for gold does not require real rates to turn deeply negative or the dollar to trend sharply lower; it merely needs confirmation that the extreme macro pressure environment of Q2 is easing, which could shift gold's trajectory from pressured decline to consolidative recovery.

Key risks include a rebound in July-August inflation or the Fed maintaining a tight policy stance, which could push nominal rates, the dollar, and real rates higher again, forcing gold back into a discount-rate pressured regime. While the Q3 macro environment may shift from headwind to neutral or slightly supportive, this transition requires verification and should not be linearly extrapolated.

Real rates, as measured by TIPS, show a significant negative correlation with gold prices. When real rates rise, the opportunity cost of holding gold increases, pressuring prices lower. Conversely, when real rates fall, the opportunity cost decreases, supporting higher gold prices.

Generally, the US dollar index and gold exhibit a negative correlation: a stronger dollar pressures gold, while a weaker dollar supports it. A stronger dollar makes gold more expensive for non-US funds, weakening marginal global demand. A weaker dollar makes gold cheaper for non-US funds, strengthening marginal demand.

Third Theme: The Risk Premium Factor

The question is whether geopolitical risks and political uncertainty ahead of the US midterm elections will re-elevate gold's risk premium. The risk premium is the additional return investors demand over the risk-free rate for holding a risky asset, determined primarily by asset volatility and overall market risk aversion, encompassing factors like geopolitical risk, liquidity risk, and policy/political uncertainty.

Middle East tensions in Q2 did not add incremental risk premium to gold. Gold prices were already elevated in Q1, with geopolitical risk premium largely priced in, and the VIX index was already high before conflicts escalated. While the VIX spiked above 30 during initial escalation, concurrent short-term liquidity tightening led to concentrated selling of highly liquid gold and silver, a core reason for their sharp correction in early March. As gold prices fell and market liquidity recovered in Q2, the accumulated risk premium was released, and the VIX retreated to around 17.

Looking to Q3, gold's performance requires close monitoring of two potential supportive variables—geopolitical risk and policy/political uncertainty—while remaining vigilant about short-term disruptions from liquidity risk.

Regarding geopolitical risk, its impact on gold operates on three levels: safe-haven demand (driving short-term spikes), the energy-inflation-real rate channel (determining direction), and de-dollarization/central bank buying (lifting the medium-term price floor). While Middle East risks have marginally eased, they are not fully resolved. US-Iran tensions have cooled somewhat with ongoing negotiations, but core disagreements remain. The base case for Q3 is a steady recovery in Strait oil transport flows. However, with oil inventories low and restocking demand supporting price resilience, the worst-case scenario of extreme supply disruption has receded, though Middle East factors continue to influence market pricing. With both the VIX and oil prices retreating, gold's geopolitical risk premium has declined. Should Middle East tensions re-escalate or large-scale conflicts emerge elsewhere, gold's safe-haven premium recovery elasticity would be significantly higher in an environment of easing conflicts, falling oil prices, and reduced Fed policy pressure.

Regarding policy and political uncertainty, the market will gradually enter the US midterm election trading window in Q3, adding extra volatility to asset pricing. With the November 2026 elections approaching, the current narrow majority in the House of Representatives naturally elevates policy uncertainty. Furthermore, aggressive policy proposals from candidates in the run-up to the election could amplify political risk disturbances.

Overall, the risk premium does not provide a fixed directional bias for gold but rather grants non-linear upside elasticity to its moves. If geopolitical tensions continue to ease and midterm election noise remains limited, gold's trajectory will primarily follow fundamental themes, maintaining range-bound trading. If conflicts flare up or US political uncertainty intensifies, it could act as a key catalyst for gold to break out of its range and initiate an upward trend.

A key risk to monitor is liquidity risk, which could trigger short-term irrational selling and sharp price corrections.

Quarterly Outlook Summary

Extending from Q2 market logic, Q3 precious metals performance will still be jointly driven by three core themes: monetary policy expectations, real rates/dollar strength, and the risk premium. However, the impact magnitude and directional influence of these three themes are expected to significantly reverse compared to Q2.

Given this setup, the Q3 outlook should not be simplistically defined as outright bullish or bearish. If there is a high probability of at least one of the three themes showing marginal improvement, it could drive a modest, sentiment-driven technical rebound in gold, with overall prices likely maintaining high-range, choppy consolidation. A sustained trending rally would likely be postponed until Q4. If two or more themes turn supportive simultaneously, gold could potentially break above its current consolidation range to establish a higher trading platform, even prematurely pricing in Q4 fundamental positives.

The W-shaped double bottom formed in March and June 2026, with London gold finding support around $4000/oz, does not imply Q3 will see a straightforward uptrend. It more closely resembles a transition from "pricing the worst-case scenario" to a phase of "awaiting confirmation of new drivers"—a case of the worst being over, but a sustained recovery not yet having arrived.