With Commonwealth Bank chief executive Matt Comyn suggesting the Reserve Bank has probably finished raising rates. Following September’s increase to 4.60%, the highest cash rate in 15 years, Australia’s largest mortgage lender believes the next move could eventually be down rather than up. However, with inflation remaining stubborn and another RBA meeting scheduled for 3 November, Comyn acknowledges that further tightening cannot yet be ruled out.
For Australian households, the prospect of an end to rate increases will be welcome news, although it does little to reverse the financial damage already inflicted. Mortgage repayments have climbed considerably, household spending has weakened, and property prices continue to retreat. Commonwealth Bank expects national dwelling values to fall around 9% from their peak, with the market potentially not finding its bottom until well into 2027. Other forecasts suggest declines of up to 15%, raising questions about how much household wealth could disappear before the market stabilises.
Interestingly, the Reserve Bank appears relatively comfortable with Australia’s housing downturn, despite property representing such a significant proportion of household wealth. Its latest Financial Stability Review suggests most mortgage holders retain sufficient equity and savings to withstand further declines, with fewer than 2% of variable-rate owner-occupier borrowers currently experiencing a cash flow shortfall. From the RBA’s perspective, falling house prices may be uncomfortable for homeowners, but they are not presently considered a serious threat to the stability of Australia’s banking system.
What has attracted considerably more attention from the central bank is the growing collection of financial risks developing overseas, particularly around artificial intelligence investment and government bond markets.
The extraordinary amount of money pouring into AI infrastructure is increasingly being supported by borrowing, with some technology companies effectively financing customers who subsequently purchase their products. The RBA has raised concerns about this circular financing arrangement, warning that expectations of enormous future profits could leave investors exposed if the AI boom fails to deliver. Meanwhile, rising government bond yields are making already substantial sovereign debts more expensive to service, increasing the possibility of a disorderly sell-off across global financial markets.
For Australia, these risks are particularly relevant. Our banking system, superannuation funds and broader investment markets remain closely connected to international capital flows, meaning a major financial shock overseas could quickly affect Australian asset prices, borrowing costs and confidence. The RBA has been clear that Australia is unlikely to escape the consequences should international funding conditions suddenly tighten.
Against this increasingly complicated economic backdrop, gold and silver continue to trade around their respective 50-day moving averages, with both metals currently sitting slightly below this important technical indicator. Neither has established a convincing recovery above the line, suggesting the market remains cautious as investors weigh persistent inflation against the possibility of weaker economic growth.
A sustained move back above the 50-day moving averages would provide a more encouraging technical signal, while continued trading below them could expose both metals to further short-term selling pressure. However, the broader economic conditions remain worth watching, particularly if concerns surrounding sovereign debt, financial stability and confidence in traditional assets continue to build.
Australia may be approaching the end of its interest rate increases, but that should not be confused with the end of its economic challenges. With housing values falling, global debt becoming increasingly expensive and enormous amounts of borrowed capital flowing into speculative technology investments, the next financial challenge may arrive from somewhere entirely different to the mortgage market.
Government bonds are essentially loans made by investors to governments. When bond yields rise, governments must generally pay more to borrow new money or refinance existing debt, placing additional pressure on public finances.
Higher bond yields can initially weigh on gold because interest-bearing investments become more attractive relative to precious metals, which do not pay interest. However, when yields rise because investors are becoming concerned about government debt, inflation or financial stability, the relationship becomes more complicated.
Gold has historically attracted investment during periods of financial uncertainty because it carries no government or corporate repayment obligation. This makes the distinction between rising yields driven by economic strength and rising yields driven by financial stress particularly important.
For Australian investors, movements in the AUD/USD exchange rate add another consideration, as a weaker Australian dollar can support local gold prices even when international prices are under pressure.
Disclosure: This article is provided for general information and educational purposes only and does not constitute financial advice. Markets can move quickly and past performance is not a reliable indicator of future results. Always conduct your own research and consider your personal circumstances before making investment decisions.
