PRECIOUS METALS: Gold Giving Up Post-Fed Gains, Silver New Record

When updated for Q3 CPI, Q2 GDP and the RBA’s November projections, our simple policy reaction function based on the core inflation and output gaps is signalling no further easing. As trimmed mean inflation doesn’t return to the 2.5% band mid-point by the end of 2027 on current assumptions, there is a risk of monetary tightening. 

• The AUD OIS market has 17bp of easing priced in by September 2026 with almost nothing by the end of 2025.
• The reaction function implies around 75bp of easing in the year to Q3 2025 but that by Q2 2026 25bp of this has been reversed. The rate estimates then settle around 4% over H2 2026 and stay there in H1 2027.
• The equation uses a one quarter lead of trimmed mean inflation which the RBA revised up to 3.2% in Q4 2025 and Q2 2026 in its November projections. It then moderates towards 2.6%.
• Using the RBA’s GDP growth expectations of around 2%, the output gap is likely to be slightly negative over the forecast period.
• It is worth noting that econometric calculations are just estimates and not predictions.

Australia policy reaction function with trimmed mean CPI %

Source: MNI - Market News/LSEG

The 30-year JGB auction delivered weak results. The low price fell short of dealer expectations of 100.45, per the Bloomberg survey. Moreover, the cover ratio decreased to 3.1248x from 3.4110x, and the auction tail lengthened significantly to 0.27 from 0.17, indicating a deterioration in bidding strength.

• Today’s result is consistent with this month’s 10-year auction, which also demonstrated weak demand metrics.
• As highlighted in our preview, today's issuance arrived with an outright yield 20-25bps below its cyclical high.
• The 30-year yield is little changed so far in the afternoon session, although 2.5bps higher on the day.

The Japanese Ministry Of Finance (MoF) sells Y 525.8bn 30-Year JGBs:

• Average Yield (%): 3.166 (prev. 3.248)
• Average Price: 100.52 (prev. 99.27)
• High Yield (%): 3.183 (prev. 3.259)
• Low price: 100.25 (prev. 99.10)
• % Allotted At High Yield (%): 8.4507 (prev. 41.4864)
• Bid/Cover: 3.1248x (prev. 3.4110x)