Key Takeaways:
Gold and silver drew renewed buying on Aug 7 as bond yields eased, with the Bank of Canada holding rates at 2.25 percent.
Governor Tiff Macklem said the current rate level "looks appropriate," assuming oil prices start to come down and the U.S. does not add further tariffs on Canadian goods.
Oil prices have risen more than 50 percent over the past month after the Strait of Hormuz closure, and the average price of gasoline in Canada has jumped nearly 40 cents a litre. Annual CPI inflation was 2.4 percent in March, up from 1.8 percent in February, while core measures have held near 3 percent.
Interest rate swap markets are pricing between two and three quarter-point rate hikes by the central bank this year, starting in October, according to Bloomberg data. A sustained bond rally would extend the metals' gains, with the next policy signal due at the bank's October meeting.
The bond market's move on Aug 7 gave gold and silver a second wind after a period of consolidation. Falling yields reduce the opportunity cost of holding non-yielding assets such as precious metals, and the shift in fixed income strengthened the inflation-hedge case for the complex.
COMEX gold and LBMA silver both drew inflows as investors rotated out of bonds. The metals complex has historically tracked the direction of real yields — when yields fall, gold and silver tend to rise, a pattern that has held across recent rate cycles at the Federal Reserve and the Bank of Canada.
The macro backdrop supports the move. The Bank of Canada has held rates steady for four consecutive decisions, and Governor Macklem has flagged two major risks that could pull rates in either direction: persistently elevated oil prices and additional U.S. tariffs. If oil prices keep rising, he said, "there may be a need for consecutive increases in the policy rate."
For investors, the bond-driven rally in precious metals points to a shift in the rate outlook. Gold and silver mining equities typically outperform the underlying metals during such moves, offering leveraged exposure to the complex. The next policy signal comes at the bank's October meeting, where swap markets expect the first of two to three quarter-point moves.
This article is for informational purposes only and does not constitute investment advice.
