Author: Evie Soemardi

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Inflation’s Unfinished Business

The first Federal Open Market Committee (FOMC) meeting, under new Federal Reserve Chair Kevin Warsh, delivered no change to interest rates, but it may prove significant for another reason.  Rather than focusing on future rate cuts, the Federal Reserve has signalled that inflation remains its primary concern and that financial markets should place greater emphasis on incoming economic data rather than central bank guidance.  At the time of writing, gold trades at approximately AUD $5,818, silver at AUD $83.56 and platinum at AUD $2294.  Meanwhile, the Federal Reserve has maintained the federal funds rate at 3.50% to 3.75%, as largely expected by the market.  More importantly, the meeting marked a noticeable change in tone from the Federal Reserve itself.

 

What changed at Kevin Warsh’s first Federal Reserve meeting?

Warsh’s first meeting was notable not only for the decision to leave rates unchanged, but also for how the decision was communicated.  Under former Chair Jerome Powell, financial markets became accustomed to extensive forward guidance; Warsh appears intent on moving in a different direction.  The June policy statement was significantly shorter and less detailed than those issued under previous leadership.  Warsh also removed forward guidance from the statement and declined to submit his own interest rate projections as part of the committee’s quarterly “dot plot.” Instead, he repeatedly emphasised that financial markets should respond to economic data rather than attempting to interpret Federal Reserve intentions.  In practical terms, this means Wall Street may receive fewer clues regarding future policy decisions. Investors, economists and fund managers will likely need to place greater emphasis on inflation reports, employment data and economic activity rather than relying on guidance from the central bank itself.

 

 Why did the Federal Reserve hold interest rates steady?

The primary reason for maintaining current interest rates is straightforward: inflation remains too high.  The latest Consumer Price Index (Headline CPI) report showed annual inflation running at 4.2% in May 2026, the highest reading in three years.  This represents a significant increase from the 2.4% annual rate recorded in January, before the escalation of conflict involving Iran and the subsequent energy shock.   The Federal Reserve’s preferred inflation target remains 2%.  Current inflation therefore remains more than double the desired level.

Perhaps more importantly, the committee’s own projections suggest policymakers are becoming less inclined to cut rates anytime soon.  Every participating policymaker projected that rates would either remain unchanged or move higher by year end.  Median forecasts place the federal funds rate at 3.8% in 2026, 3.6% in 2027, 3.4% in 2028 and 3.1% over the longer term.  The balance of risks appears tilted toward higher rates rather than lower ones, for the moment.

  

Why is inflation still running above the Fed’s target range?

Energy

While energy prices have been the most visible contributor to inflation, the broader picture remains more complex.  The U.S.-Israel-Iran war and the disruption of energy markets has had a substantial impact on headline inflation (or overall inflation).  In May, overall energy costs were up 23.5% year over year.  Petrol prices increased 33%, while fuel oil prices surged 58.9% in the U.S.  The national average price for regular petrol climbed from approximately USD $3.12 per gallon a year ago to USD $4.15 (USD 69 cents to $1.10 per litre).

Shelter

However, inflation is not solely an energy story.  Shelter costs, which represent the largest component of the CPI basket, continue to rise steadily. The shelter index increased 3.4% over the previous twelve months.  Because housing costs typically adjust slowly as leases are renewed, shelter inflation tends to remain elevated long after other categories begin cooling.

Services

Services inflation also remains persistent.  Transportation services were up 4.1% year over year, while medical care services increased 3.6%.  These categories are particularly important because they often reflect broader labour costs and underlying economic demand rather than temporary commodity price shocks.

Collectively, these factors explain why the Federal Reserve remains reluctant to declare victory over inflation.

 

Why isn’t the labour market forcing rate cuts?

Another major factor influencing interest rates is employment.  Historically, the Federal Reserve faces pressure to lower rates when unemployment rises sharply or economic activity deteriorates.  Technically, neither condition currently exists.  Employers added approximately 172,000 jobs during May, while the unemployment rate remained stable at 4.3%.  Over the past year, unemployment has largely remained within a narrow range between 4.3% and 4.5%.  This is a markedly different environment from 2022 at the height of the Covid 19 Pandemic Era, when there were just over two job vacancies per unemployed worker and labour shortages were driving rapid wage growth throughout the economy.  Today’s labour market appears substantially more balanced with about one job vacancy per unemployed worker.

However, while inflation continues to rise, both wage growth and the household savings rate in the United States have moved sharply lower.  Rather than being supported by stronger earnings, consumption is increasingly being sustained through reduced savings, as the chart below illustrates.  While some economists may regard this as a red flag, the Federal Reserve insists that with employment remaining relatively stable, it has room to wait and assess whether inflation continues easing or begins accelerating further.

What is the bond market telling investors?

One of the most immediate consequences of the Fed’s decision can be seen in bond markets.

The U.S. 10-year Treasury yield currently sits near 4.5%, a level last consistently observed in September 2007 before the Global Financial Crisis (GFC).  Meanwhile, the 30-year Treasury yield has climbed to approximately 4.9%, levels not seen since July, 2007.  Australian bond markets reflect similar conditions.  Australian 10-year government bond yields currently sit around 4.8%, while 30-year bonds yield approximately 5.3%.  For investors, these yields are becoming increasingly attractive.

Core CPI (inflation without the volatility of food and energy included) currently sits at approximately 2.9% while Headline CPI (which includes everything) is 4.2%.  A 10-year Treasury yielding 4.5% therefore provides a real return buffer of roughly 1.6% compared to Core CPI or 0.2% when measured against Headline CPI, while longer-duration bonds offer an even greater margin above inflation.  Either way, Government bond yields offer investors immediate protection against inflation.  Bonds once again provide meaningful income and a reasonable opportunity to maintain purchasing power.

 

How do higher interest rates affect gold and silver?

This environment creates a more challenging short-term backdrop for precious metals.  Gold and silver do not generate income, so when bond yields rise and investors can earn a return above inflation, some capital naturally shifts toward fixed-income markets.  This helps explain why precious metals often consolidate during periods of rising yields; however, the broader picture remains more complex.  Inflation has not been resolved, government debt continues to expand, geopolitical tensions remain elevated, and energy markets are still vulnerable to disruption.  These same pressures that support higher bond yields also strengthen the long-term case for tangible assets.  In the short term, gold and silver must compete with bonds for capital.  Over the longer term, their role is tied to purchasing power preservation, currency risk, and confidence in the broader financial system.  If inflation outstrips bond yields (as it did leading up to the GFC and during the Covid 19 Pandemic Era), look to see capital rotate back to precious metals.  As the second half of 2026 unfolds, the tension between these forces is likely to remain one of the most important themes across global markets.

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The AI Capital Race Expands

Artificial intelligence continues to dominate financial markets, but the story is evolving beyond valuations and upcoming initial public offerings (IPOs). While investors have focused heavily on listings such as SpaceX, OpenAI and Anthropic, another capital-raising wave is quietly developing alongside them.  This time it is coming from some of the world’s largest publicly listed technology companies.

At the time of writing, gold trades at approximately AUD $6,134, silver at AUD $99.23 and platinum at AUD $2,544.51.  Meanwhile, technology giants are committing unprecedented sums toward AI infrastructure, data centres and cloud-computing capacity.  Whether through IPOs, bond issuances or capital expenditure programmes, the common theme is capital.  While the mechanisms differ, all of these initiatives are ultimately competing for the same pool of global capital within a relatively compressed timeframe.

 

Different paths to the same destination

 The upcoming AI-related IPOs involve private companies selling ownership stakes to public investors for the first time.  The objective is straightforward: raise capital to fund growth while providing liquidity to existing shareholders.  Established public companies operate differently.  Rather than selling new ownership interests, they often raise funds through debt markets by issuing corporate bonds (i.e. they sell debt and pay back with interest).  Investors lend money to the company in exchange for a fixed return, while the company gains access to capital without diluting existing shareholders.  These debt obligations are paid out prior to dividends.  Although the structures differ, the outcome is remarkably similar.  Investors must decide where to allocate their funds.  Capital directed toward a bond issue is capital unavailable for an IPO or share purchase.  Capital committed to an equity raising cannot simultaneously be invested elsewhere.  Money can only be spent once.

 

Google’s historic debt raise

 Google’s parent company, Alphabet, has increased their target raise from USD $80 billion to USD $84.75 billion.  They have already recently demonstrated the scale of this competition by raising approximately USD $32 billion through eleven separate corporate bond tranches.  The offering ranged from two-year notes through to 100-year bonds making it one of the largest corporate debt issuances in recent years.  The century bond alone attracted approximately USD $9.5 billion in orders despite offering a spread of only 120 basis points above comparable government debt.  The last time 100-year bonds were issued was during the dot-com bubble in 1997; in this instance Motorola offered USD $300 million worth of 100-year bonds and is today heralded as a prime example of peak corporate confidence to occur near the top of a cycle.  As with many other technology giants during the dot-com crash, Motorola went on to lose approximately 79% of market capital over the next three years.  Again, history does not repeat but it certainly can rhyme.

The timing is noteworthy.  Just days before the debt issue, Alphabet announced plans to increase capital expenditure to approximately USD $80 billion in 2026, largely directed toward artificial intelligence infrastructure.  The debt raise therefore appears less about strengthening the balance sheet and more about funding one of the largest technology expansion programmes currently underway.

 

The data centre arms race 

The debt itself is not the most important story.  The spending it enables is.  Artificial intelligence requires extraordinary amounts of computing power.  That computing power requires data centres, semiconductors, networking equipment, electricity generation and cooling systems on a scale rarely seen in the private sector.  Morgan Stanley estimates spending by hyperscale cloud-computing companies could reach approximately USD $400 billion during 2026, up from around USD $165 billion in 2025.  In a single year, projected investment is expected to increase by approximately USD $235 billion.  Alphabet’s USD $80 billion commitment is only one part of a much larger trend.  Amazon is expected to spend approximately USD $200 billion on capital expenditure this year, while Microsoft and Meta continue directing tens of billions of dollars toward AI-related infrastructure.  Collectively, these commitments represent one of the largest peacetime technology build-outs ever undertaken.  Debt raises, bond offerings and equity issuances are financing mechanisms.  Capital expenditure represents the physical deployment of resources into productive assets.  The AI story is increasingly becoming an infrastructure story.

 

Amazon and the expanding investment cycle

Amazon sits at the centre of the same trend.  Through Amazon Web Services (AWS), the company operates one of the world’s largest cloud-computing businesses and remains heavily exposed to the growth of artificial intelligence.  Some of its customers include Netflix, Airbnb, Adobe, Canva, and thousands of government agencies, with 924 data centres and counting spread across 50 countries as at 2023.  To put this in perspective, Australia is home to just over 250 data centres nationwide.  To maintain its competitive position, Amazon has published capital expenditure of USD $128.3 billion in 2025.  In order to remain a contender the company has announced a spend of $200 billion in 2026, the bulk of which has been assigned to support AI infrastructure, data-centre construction and computing capacity.  Why is Amazon investing so heavily into AI and customised web services? As a company asset, AWS generates around 60% of total profits and is seen to be capped by supply issues rather than demand.

What makes this particularly significant is that Amazon, Alphabet, Microsoft and Meta are all pursuing similar strategies simultaneously.  Each company is seeking to expand computing capacity at an unprecedented pace, placing increasing pressure on engineering talent, semiconductor supply chains, electrical infrastructure and available investment capital.  The result is an industry-wide competitive investment cycle that increasingly resembles a modern industrial build-out rather than a traditional software expansion.

 

The competition for capital 

Viewed in isolation, a USD $32 billion bond issue or a USD $75 billion IPO may not appear extraordinary; however, viewed collectively a different picture emerges.  SpaceX overshot their target raise of USD $75 billion by USD $10 billion, raising $85.7 billion to date.  OpenAI is pursuing USD $110 billion.  Anthropic is targeting a valuation approaching USD $1 trillion and needs to raise enough capital to match.  Alphabet wants to raise USD $84.75 billion in funds via debt while planning approximately USD $80 billion in capital expenditure.  And Amazon is targeting around USD $100 billion.  Investors seeking exposure to these opportunities may fund their participation by reducing positions elsewhere.  Institutions allocating funds to major IPOs may rebalance existing portfolios.  Bond investors participating in large debt issuances may redirect capital away from other fixed-income opportunities.  The question is how broader markets will respond as hundreds of billions of dollars are simultaneously drawn toward a single investment theme.

In summary

 The most important development is not the individual moving parts.  Rather it is the combined effect of investment capital raising in a contracted timeframe during a significant technology stock boom.  Some is being raised through debt markets.  Some comes from retained earnings and internal cash flows.  And some of that capital is being raised through IPOs (which could turn out to be the most excessive pump and dump scheme in history).  Regardless of the source, the destination remains the same: a massive build-out of AI infrastructure.  Inflows of capital into a single sector of this magnitude has historically equated to excessive valuations; consequently, other asset classes become undervalued as capital rotates into the “next big thing.”  In such an environment gold and silver stand out as the perfect contrarian investment.  While short-term price movements will continue to be dictated by broader market conditions, the long-term trend remains clear.  The AI revolution is no longer simply a software story.  It is becoming one of the largest infrastructure projects in modern economic history, and that carries significant implications for the commodities required to build it.

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The AI IPO Wave: Boom or Bubble?

Financial markets appear poised for one of the largest concentrations of initial public offerings (IPOs) in modern history.  Over the coming months, three of the most prominent names in artificial intelligence and advanced technology, SpaceX, OpenAI and Anthropic, are expected to seek public listings with combined valuations approaching USD $4 trillion.  With Morgan Stanley, Goldman Sachs, Bank of America, Citigroup and JPMorgan as typical underwriters confidence is brimming.  At the time of writing, gold trades at approximately AUD $6,123 per ounce, silver at AUD $95, and platinum at AUD $2,496.  While precious metals have spent much of the year consolidating, equity markets continue to chase growth, particularly anything associated with artificial intelligence.

The question facing investors is whether these listings represent the next stage of technological innovation or the latest chapter in a speculative cycle that increasingly resembles previous market manias.  More importantly, what happens to broader financial markets when trillions of dollars of capital are required to fund a handful of highly anticipated public offerings?

 

Valuations reach extraordinary levels

While the companies themselves are undeniably influential, valuation remains a separate question.  Based on reported 2025 revenue of approximately USD $18.67 billion, SpaceX’s proposed valuation of USD $1.75 trillion implies a trailing price-to-revenue ratio of roughly 94 times, compared to Tesla at approximately 17 times revenue when it floated.  Supporters argue such comparisons struggle to account for businesses creating entirely new industries as SpaceX is expected to achieve.  Critics, however, point to the dot-com boom of the late 1990s when investors similarly argued conventional valuation methods no longer applied.  While many of those technologies ultimately transformed the world numerous share prices proved unsustainable.  The same debate now surrounds artificial intelligence: the technology may be revolutionary, but investors must still determine how much future growth has already been incorporated into current valuations.

A historically crowded IPO calendar

The scale of what is being proposed is difficult to overstate.  SpaceX is targeting a valuation of approximately USD $1.75 to $2 trillion.  OpenAI will pursue near USD $1 trillion, while Anthropic seeks a valuation exceeding USD $965 billion.  Combined, these three companies potentially represent around USD $3.7 to $4 trillion in market capital.  To place this into perspective, the entire Australian Securities Exchange (ASX) currently carries a market capitalisation of approximately AUD $3.2 trillion (or USD $2.28 trillion).  The implications are significant.

An initial public offering is the process by which a private company sells shares to public investors for the first time.  Of the 5% that SpaceX is selling, the company intends to reserve up to 30% of the offering for retail investors.  This is significantly above the industry norm of 5% to 10%.  The smaller than normal exposure to the wholesale market presents questions that only time will answer.

 

The liquidity question

Beyond valuation, another issue receives far less attention: liquidity.  Every dollar invested in an IPO must come from somewhere.  When multiple mega-capitalisation listings occur within a compressed timeframe they compete for the same pool of investment capital.

SpaceX alone is expected to sell approximately 555.6 million shares at around USD $135 per share to raise roughly USD $75 billion.  OpenAI and Anthropic could collectively seek hundreds of billions more as they transition into public ownership.  This creates an unusual dynamic.  Large allocations into new offerings can therefore drain liquidity from other areas of the market.  Investors seeking exposure to these listings may fund their participation by reducing positions in existing technology giants such as Apple, Microsoft, Alphabet, Amazon, Nvidia and Meta, and above all, Bitcoin.  Such a rotation could create heightened volatility across the broader technology sector as capital is redistributed toward a small number of highly anticipated IPOs.

 

 Dotcom Bubble Déjà Vue?

The closest historical comparison may be the dot-com boom of the late 1990s.  As internet adoption accelerated, investors poured capital into technology companies at an unprecedented rate, often placing growth potential ahead of profitability, cash flow and conventional valuation metrics.  The result was a speculative frenzy that drove the Nasdaq to a peak of 5,048 on 10 March 2000.  What followed was a sharp reversal.  By 4 October 2002, the index had fallen to 1,139, wiping out 76.81% of its value and destroying trillions of dollars in market capitalisation.  More importantly, the recovery was measured not in months but in decades.  The Nasdaq did not reclaim its previous high until April 2015, approximately fifteen years later.

Today, artificial intelligence is generating a similar level of enthusiasm, and the proposed IPOs are arriving into a market already willing to assign extraordinary valuations to future growth.  The 18.6-year Real Estate and Economic Cycle places this IPO wave at the height of broader market euphoria that typically occurs just before a significant economic downfall that could see 30% wiped off the stock market overnight.  Are we certain this will happen in the near future?  No.  But could the IPO event turn into one of the largest dotcom-esque “pump and dump” schemes in history?  Yes.  At this stage in the cycle, anything is possible.

 

Echoes of previous cycles

None of this means the AI revolution is not real.  Artificial intelligence is already reshaping software development, research, automation, customer service, healthcare and defence applications.  Unlike many speculative themes of previous decades, genuine revenue and commercial adoption exist today.  However, history demonstrates that transformative technologies and speculative excess often arrive together.  Railways transformed transportation.  Electrification transformed industry.  The internet transformed communication.  Yet each of those innovations was accompanied by periods where investor enthusiasm pushed valuations far beyond what fundamentals could justify.  The danger for investors is not necessarily choosing the wrong technology.  It is paying too much for the right technology.  That distinction becomes increasingly important when market participants begin valuing future possibilities rather than present realities.

  

What it means for precious metals

At first glance, the AI IPO boom appears unrelated to precious metals.  In practice, the connection is straightforward.  Periods of speculative enthusiasm typically attract capital away from defensive assets such as gold and silver.  Investors become willing to accept greater risk in pursuit of higher returns.  Money flows toward growth sectors, emerging technologies and momentum trades.  This dynamic can create temporary headwinds for precious metals; however, speculative cycles also tend to increase systemic risk over time.  Elevated valuations, concentrated capital flows and excessive leverage create vulnerabilities that often remain hidden during the boom phase.  When expectations eventually collide with reality, capital frequently rotates back toward defensive assets.  Gold and silver have performed this role repeatedly throughout history.

For precious metals investors, the key takeaway is that the broader macroeconomic backdrop has not changed.  Debt continues to rise, fiscal deficits continue to widen, and central banks remain trapped between inflation and economic growth.  Whether the AI boom ultimately becomes the next great technological success story or the next great market bubble, those longer-term fundamentals remain supportive of gold and silver.  As always, the challenge is distinguishing between excitement and value before the market does it for you.

 

 

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The Rise of Bond Yields

Financial markets are increasingly focused on one metric that quietly influences almost every asset class: the yield on U.S. Treasury bonds.  While equities, precious metals and cryptocurrencies often dominate headlines, Treasury yields arguably provide one of the clearest measures of investor confidence in the broader economy.  At the time of writing, gold trades at AUD $6,307 per ounce, silver at AUD $105.90, platinum at AUD $2,730, and the U.S. 10-year Treasury yield sits at approximately 4.46%.

 

While this marks the fourth occasion the 10-year yield has reached this level in the past three years, it has not sustained these levels consistently since October 2007, immediately preceding the Global Financial Crisis (GFC).  Interestingly, the period leading into the GFC displayed a similar pattern, with yields testing this level four times across a three-year period before broader financial stresses emerged.  While history does not repeat exactly, it often rhymes.  Understanding why yields are rising, and what investors are attempting to price into the market, provides valuable insight into the outlook for precious metals and financial markets more broadly.

Why are yields rising?

At its simplest, a bond yield is the return investors receive for lending money to a government.  When investors become concerned about inflation, fiscal sustainability, or future economic uncertainty, they demand a higher return to compensate for taking on additional risk.  The result is higher yields on newly issued bonds and lower bond prices in secondary markets.

The United States provides no shortage of reasons for concern.  According to the U.S. Treasury, national debt has reached approximately USD $39 trillion while the country currently runs an unsustainable 7% account deficit.  The debt-to-GDP ratio now sits at roughly 100.2%, the first time it has exceeded 100% since World War II.  For the 2026 financial year, federal interest payments alone are expected to reach approximately USD $1.039 trillion, while the annual budget deficit remains around USD $2.5 trillion.  The Congressional Budget Office projects debt could climb to 175% of GDP by 2056 if current trends continue.  The United States now spends 50% of its annual tax revenue on making interest-only payments towards its debt.  The scale of borrowing is difficult to comprehend.  U.S. debt is currently increasing by approximately USD $55 to 88 billion every day.  As more debt is issued larger volumes of Treasury bonds must be absorbed by the market, increasing supply and placing upward pressure on yields.

Viewed through a business lens, the explanation becomes relatively straightforward.  When a company takes on increasing amounts of debt without a corresponding improvement in its financial position, lenders demand a higher rate of return to compensate for the growing risk.  Governments are no different.  While the United States remains the world’s largest economy and the issuer of the global reserve currency, investors are increasingly scrutinising its fiscal trajectory.  Rising debt levels, persistent deficits, and rapidly growing interest expenses are prompting bond markets to demand greater compensation for lending money to the U.S. government.

 

When higher yields are not good news

What makes the current environment particularly interesting is that the apparent strength in bond yields may actually be signalling a deeper weakness in the underlying currency itself.  Throughout history, governments confronted with excessive debt burdens have ultimately resorted to some form of currency debasement to ease the pressure.  The 1970s provide a useful example.  During that decade, the U.S. dollar lost roughly half its purchasing power while gold rose from USD $35 to USD $850 per ounce.  Importantly, that move was not a straight line.  Sharp corrections and periods of investor pessimism repeatedly interrupted the broader trend before gold ultimately reached new highs.  Today, many investors remain focused on the attraction of higher bond yields, yet those yields exist partly because markets are demanding greater compensation for fiscal and monetary risks.  In that sense, rising yields and rising gold prices need not be opposing forces over the longer term.  Both can be interpreted as different market responses to the same underlying concern: preserving purchasing power in an increasingly debt-laden financial system.

 

The inflation problem

Rising debt would be less concerning if economic growth was strong and inflation remained contained.  However, investors are now attempting to price multiple risks simultaneously.  The ongoing disruption to global energy markets, particularly surrounding the Strait of Hormuz, has pushed oil prices materially higher causing fundamental supply and demand issues.  Higher energy costs eventually filter through transport, manufacturing, agriculture and consumer goods, creating a flow-on effect of inflationary pressure throughout the economy.

This places central banks in a difficult position.  If inflation remains elevated, policymakers may be forced to keep interest rates higher for longer.  If they lower rates too quickly, inflation risks accelerating once again.

 

What does this mean for gold and silver?

Traditionally, rising bond yields can create short-term headwinds for gold because Treasury bonds begin offering more attractive income streams.  Investors comparing a non-yielding asset such as gold against a government bond yielding close to 5% may favour the bond initially; however, yields alone do not tell the whole story.  The more important measure is the real yield, being the difference between bond yields and inflation.  If inflation continues rising faster than yields, investors still lose purchasing power despite earning interest.  This is the point where gold often begins outperforming.

History shows that precious metals tend to struggle during the early stages of rising yields but perform strongly when markets begin questioning whether governments can realistically control debt and inflation simultaneously.  The current environment is increasingly moving in that direction.

 

In summary

Rising bond yields are not occurring in isolation.  They reflect growing concerns surrounding inflation, government borrowing, fiscal sustainability and the long-term health of the global financial system.  With U.S. debt approaching USD $39 trillion, annual deficits more than USD $2 trillion, and interest costs exceeding USD $1 trillion per year, yields on Treasuries are bound to increase.

In the short term, higher yields may continue to compete with gold and silver for investment capital.  However, if inflation persists and debt continues expanding at its current pace, the market may eventually reach a point where bond yields can no longer adequately compensate for the loss of purchasing power.  Historically, that is when precious metals become increasingly attractive.  Rising yields may appear bearish for gold today, but they may ultimately be signalling the very conditions that support higher precious metals prices tomorrow.

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Oil’s Shrinking Buffer

Global oil markets are entering increasingly dangerous territory as the 2026 U.S-Isreal-Iran War continues to disrupt flows through the Persian Gulf.  What initially appeared to be a temporary supply shock is now evolving into a deeper structural problem: the world is rapidly burning through the inventories that normally protect against severe shortages and price spikes.  At the time of writing, gold trades at approximately AUD $6,342 per ounce, silver at AUD $107.31 and platinum at AUD $2,745, while oil markets remain under sustained pressure.

Since the Strait of Hormuz has moved toward near closure, the global oil system has been forced to rely heavily on stored reserves to maintain supply.  These inventories act as the shock absorber of the global energy market and cushions disruptions when production or shipping becomes impaired.  The problem is that the buffer is now being depleted at record speed.  Morgan Stanley estimates global oil inventories fell by approximately 4.8 million barrels per day between March 1 and April 25, well beyond any previous quarterly drawdown recorded by the International Energy Agency.  Crude oil accounted for almost 60% of the decline, with refined fuels making up the balance.  This is not a minor adjustment in supply chains; it is a historically significant depletion of emergency capacity across the global energy system.  So far, supply loss from Gulf producers exceed more than one billion barrels.

 

The operational minimum

Importantly, oil inventories do not need to reach zero before markets break down.  Energy systems require a minimum amount of crude and refined fuel simply to continue functioning.  Pipelines, export terminals, refineries and storage infrastructure all rely on what analysts call an “operational minimum.”  JPMorgan has warned that inventories of the Organisation for Economic Co-operation and Development (OECD) could reach “operational stress levels” as early as next month if the Strait of Hormuz remains restricted, with “operational minimum” conditions potentially emerging by September.  Indeed OECD countries have seen the sharpest declines in oil inventories at 146 million barrels, versus non-OECD countries seeing a drop of 24 million barrels.

This distinction matters.  Markets can tolerate falling inventories for a period of time, but once operational minimums are approached the system becomes highly unstable.  At that point, even small disruptions can create outsized price reactions because there is no longer enough spare supply available to absorb shocks.  While Goldman Sachs notes the pace of drawdowns may have slowed slightly due to weaker Chinese demand, global visible oil inventories are already near their lowest levels since 2018.  The world is no longer operating with a comfortable surplus.

 

The state of liquid fuel in Australia

Although Australia’s fuel inventories remain above mandated minimum levels, recent data highlights just how reliant the country remains on uninterrupted global supply chains.  During the 2024–25 financial year, diesel stockpiles averaged 2,968 megalitres (ML), compared with a required minimum of 2,485 ML, leaving a buffer of approximately 19% above the government’s Minimum Stockholding Obligation (MSO).  Petrol (gasoline) inventories averaged 1,743 ML against a required 1,070 ML, or 63% above minimum levels; while aviation fuel stocks averaged 799 ML compared with a required 581 ML, roughly 38% above mandated requirements.

However, more recent figures as at May 12 this year suggest those buffers are tightening materially.  Diesel inventories have fallen to 2,905 ML against a minimum requirement of 2,742 ML, leaving stock only 6% above mandated levels.  Petrol inventories currently sit at 1,631 ML versus a required 1,067 ML, while aviation fuel inventories stand at 790 ML against a minimum 663 ML, reducing the surplus to approximately 19%.  The decline in diesel reserves is particularly significant because diesel underpins freight transport, mining, agriculture and much of Australia’s industrial economy.  Officially, Australia holds the equivalent of around 36 days of diesel consumption, 44 days of petrol, and 35 days of aviation fuel under normal conditions, hence the country remains heavily dependent on imported refined fuel and vulnerable to disruptions across major shipping routes and energy corridors such as the Strait of Hormuz.

Asia faces the greatest risk

The immediate pressure points are emerging in import-reliant Asian economies.  Energy traders are increasingly highlighting Indonesia, Vietnam, Pakistan and the Philippines as the countries most vulnerable to critical shortages, with some estimates suggesting fuel supplies could reach dangerous levels within a month if disruptions continue.  Europe is also beginning to feel strain, particularly in jet fuel markets heading into the summer travel season.

The United States, despite becoming the world’s supplier of last resort, is facing its own inventory problems.  U.S. crude stockpiles, including the Strategic Petroleum Reserve, have declined for four consecutive weeks.  Refined petroleum products such as diesel and jet fuel recently fell to their lowest levels since 2005, while petrol (gasoline) inventories remain near their weakest seasonal levels since 2014.  The United States itself has only deployed around 79.7 million barrels of the 172 million barrels it pledged to release, partly because policymakers are attempting to balance short-term supply needs against the longer-term risk of exhausting strategic reserves.  If the full release proceeds, U.S. reserves would fall to their lowest level since 1982.

Governments are attempting to stabilise the market through strategic reserve releases.  The International Energy Agency has already coordinated the release of a record 400 million barrels from emergency stockpiles.  Yet even this creates a dilemma: every barrel released today further reduces the future buffer available if the conflict worsens.

 

Why oil prices could still move higher

At first glance, higher prices should solve the problem by reducing demand.  To some extent this is already occurring.  Global oil consumption has softened as elevated prices and supply disruptions begin constraining economic activity.  However, analysts increasingly warn that demand destruction may not yet be sufficient to rebalance the market.  Oil import-dependent countries could face critical shortages through the June-July period.  And petrol shortages across parts of Asia could emerge rapidly if the Strait of Hormuz remains constrained into June.

This is the key point: inventories are falling faster than demand.  As long as that imbalance persists, prices remain vulnerable to another leg higher.  And even if the waterway reopens, the problem does not disappear immediately.  Governments and companies will eventually need to rebuild depleted stockpiles, creating an entirely new layer of future demand.  Demand will rise above pre-war levels as nations attempt to restore energy security buffers.  In other words, the consequences of the conflict may continue influencing oil markets long after the fighting subsides.

 

Inflation and the economic cycle 

The economic implications of sustained higher oil prices are significant.  Oil sits near the centre of the global economy.  When energy prices rise sharply, transportation, manufacturing, agriculture and retail costs all increase alongside it.  This feeds directly into inflation.

During this stage, gold prices can soften despite geopolitical instability because higher inflation expectations also push bond yields upward.  This temporarily makes fixed-income assets (bonds) more attractive relative to non-yielding gold.  This explains why precious metals do not always rally immediately during geopolitical crises.  However, this relationship changes once inflation begins outpacing bond yields.  At that point, real returns on bonds deteriorate because investors lose purchasing power after accounting for inflation.  Historically, this is the moment when gold tends to reassert itself as the preferred safe haven asset.

The sequence is often straightforward:

Oil prices rise.  The cost of goods rises.  Consumer spending contracts.  Economic growth slows.  Demand eventually weakens enough to pressure oil prices lower again.

But before that balancing process occurs, inflation can become highly disruptive to financial markets.

 

Precious metals and the next phase

As long as the oil crisis persists, precious metals prices may continue to experience periods of softness despite the broader geopolitical instability.  Rising oil prices feed directly into inflation, which in turn support Treasury yields and strengthen the U.S. dollar in the short term.  During this phase, capital often rotates toward yield-bearing safe havens such as government bonds rather than non-yielding assets like gold.  This partially explains why precious metals have not responded as aggressively to the conflict as many initially expected.

However, this dynamic rarely lasts indefinitely.  History shows that prolonged energy shocks eventually begin placing unsustainable pressure on the broader economy.  Higher fuel costs filter through transportation, manufacturing, food production and consumer goods, steadily eroding purchasing power and slowing economic activity.  At a certain point, inflation begins rising faster than bond yields can compensate and the market narrative shifts. What initially favoured bonds and cash transitions into a search for assets capable of preserving purchasing power in real terms and discounted assets as a result of the downturn.  That is typically the point where precious metals begin outperforming more decisively.

In that sense, the current environment may ultimately prove to be the calm before the storm.  The market is still attempting to absorb the inflationary consequences of higher oil prices while assuming the disruption remains temporary.  But if inventories continue tightening, inflation persists, and economic stress deepens, the balance between bonds, currencies and precious metals is likely to shift once again.  Historically, it is during these later-stage inflationary periods that gold and silver tend to emerge as the preferred safe haven assets.

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Budget Pressures and Precious Metals

Global markets continue to operate under mounting fiscal and structural pressure, and Australia’s 2026–27 Federal Budget has added another layer to that uncertainty. While framed around housing affordability, cost-of-living relief and economic resilience, the broader implications extend well beyond day-to-day politics. At the time of writing, gold trades at approximately AUD $6,384 per ounce, silver at AUD $109.71 and platinum at AUD $2,801.

Importantly, the budget is not directly bullish for precious metals because of any explicit policy toward bullion.  Rather, it is the broader macroeconomic consequences that matter most.  Expanding deficits, rising debt burdens, inflationary spending pressures, and property tax reforms all contribute to an environment in which investors increasingly reassess how and where they preserve wealth.

 

Structural Deficits and Rising Debt

 Despite Treasury highlighting improvements in the budget position, Australia’s debt trajectory continues upward with gross federal debt already exceeding AUD $1 trillion.  Large spending commitments across healthcare, defence, housing, energy transition initiatives and cost-of-living support ensure ongoing deficits and increased borrowing.  Persistent deficits matter because they require continued bond issuance and reinforce concerns surrounding fiat currency purchasing power and long-term fiscal sustainability.  The broader concern is not simply the size of the debt itself, but the growing dependency on debt-funded growth.  Governments globally are increasingly relying on fiscal stimulus to support slowing economies, maintain employment and offset weakening private-sector activity. Over time, that creates pressure on currencies, interest rates and inflation expectations simultaneously.

Historically, these conditions have supported hard assets such as gold.  This does not necessarily imply an immediate surge in precious metal prices.  However, it strengthens the longer-term case for monetary metals as investors increasingly seek assets outside the traditional debt-based financial system.

 

Property Reforms and Capital Rotation

 One of the most significant components of the budget was the proposed restructuring of investment taxation, particularly changes to the Capital Gains Tax (CGT) discount and negative gearing.  Under the announced measures, from 1 July 2027 the 50% CGT discount for assets held longer than 12 months would be replaced with a cost-base indexation model alongside a new 30% minimum tax rate on real capital gains.  Negative gearing deductions would also become largely restricted to new residential builds.

While the measures remain proposed rather than legislated, they are already influencing investor sentiment.  Australian investors have historically concentrated heavily in residential property due to favourable tax treatment and leverage accessibility.  If leveraged property becomes materially less tax-efficient, capital will inevitably begin searching for alternative stores of value.  This matters because the Australian bullion market remains comparatively small relative to property and equities. Even a modest reallocation toward physical gold and silver could materially affect retail demand.

Survey data already points toward changing investor behaviour.  A recent survey found that 61% of property investors would reduce exposure to the market if both the CGT and negative gearing reforms proceed.  Industry modelling also suggests the combined reforms could reduce dwelling starts by tens of thousands of homes while simultaneously increasing rental pressures;

However, with average weekly rents already exceeding $700 in Brisbane, Darwin, Canberra and Perth, and approximately $800 in Sydney, the property market is more likely to gradually soften in line with broader economic cycles.

 

Inflation Pressures Remain Sticky 

Another important implication of the budget is the ongoing risk of persistent inflation.  Large-scale fiscal spending supports aggregate demand and can keep inflation elevated for longer than central banks would prefer.  While inflation has moderated from the 7.8% peak reached in 2022, at 3.72% it remains above the traditional 2–3% target range.  If inflation remains sticky, policymakers may be forced to maintain higher interest rates for longer.  Alternatively, if economic conditions weaken materially while inflation remains elevated, central banks may eventually be pressured toward lower rates despite inflation risks.  This is where real interest rates become critical.

Gold is influenced less by nominal rates themselves and more by real yields; that is, interest rates after inflation is taken into account.  If inflation remains higher than bond yields, investors effectively lose purchasing power holding cash or fixed-income assets. Under those conditions, gold often becomes increasingly attractive because it preserves purchasing power over long periods.

Silver behaves somewhat differently because it carries both monetary and industrial demand characteristics.  During later-stage inflationary cycles, silver can outperform gold as speculative capital enters the market alongside manufacturing demand linked to electrification and industrial production.

Trusts and Investment Structures

Beyond property itself, the budget also introduced proposed changes affecting discretionary trusts and broader investment structures.  From 1 July 2028, income distributed through discretionary trusts would become subject to a minimum 30% tax rate under the announced measures.  Questions also remain surrounding how the new CGT framework may interact with managed investment structures and indirectly held assets.  Importantly, superannuation funds currently appear largely excluded from many of the proposed changes based on Treasury commentary so far.  This may incentivise investors to increase precious metal holdings via self-managed superfunds as opposed to discretionary trusts.

Additionally, physical bullion occupies a unique position because it carries no counterparty risk.  Unlike leveraged property investments, equities or managed funds, physical gold and silver are not dependent on the solvency of financial institutions or the performance of broader credit markets.

 

In Summary

The 2026–27 Federal Budget is not directly a “bullish bullion” policy package; however, the broader economic consequences of the measures announced are generally supportive for precious metals over the medium to long term.  For decades, Australian wealth has concentrated heavily in leveraged property, equities and banking assets.  But as taxation settings shift and fiscal pressures intensify, capital may gradually begin rotating toward alternative stores of value.

At the same time, the broader macroeconomic backdrop continues to favour hard assets.  Real interest rates remain under pressure, sovereign debt continues expanding globally, and geopolitical fragmentation is becoming increasingly embedded within the international financial system.  While short-term price movements will continue to fluctuate alongside economic data and geopolitical events, the longer-term structural drivers supporting precious metals remain firmly intact.