Gold Appeal Rises, Growth May Slow in 2025 (12.16.2024)

The Federal Reserve is expected to implement another 25bps rate cut at its final meeting of the year.

This would increase gold's attractiveness by lowering the cost of holding assets that do not yield interest. In addition, the ongoing conflicts in the Middle East, especially Israel's recent air and ground strikes in Gaza, have strengthened gold's value. The World Gold Council has forecasted slower growth for gold in the coming year, pointing to factors such as central bank policies, geopolitical pressures, and economic conditions in major markets like the U.S., China, and India.

Euro Steadies Before Fed Decision

The euro held steady at 1.05 as the week began. The dollar index fell to around 106.8 but stayed near its highest level in three weeks as investors looked ahead to the Federal Reserve's upcoming policy decision. The central bank is widely expected to cut interest rates by 25 basis points on Wednesday, but market attention will be focused on the updated policy statement and forward guidance from Fed Chair Powell.

Speculation is rising that the Fed may signal a more gradual approach to easing in 2025. At present, traders see a 93% chance of a quarter-point rate cut this week, though they now expect the Fed to refrain from reducing rates in January. Meanwhile, worries about potential inflationary pressures under the incoming Trump administration have kept market sentiment tense.

Technically, the first resistance level will be 1.0540. In case of this level’s breach, the next levels to watch would be 1.0600 and 1.0660. On the downside 1.0450 will be the first support level. 1.0400 and 1.0330 are the next levels to monitor if the first support level is breached.

Japanese Yen Reaches Lowest Point in Three Weeks

The Japanese yen weakened to around 154 per dollar, reaching its lowest point in three weeks as markets speculated that the Bank of Japan would hold off on raising interest rates this week. Traders nearly ruled out the possibility of a 25 basis point rate hike at the BOJ's December meeting after reports suggested that the central bank saw "little cost" in postponing further tightening. BOJ officials have stated that they want to see more evidence of wage growth before making additional policy changes.

Some policymakers noted that concerns about the weak yen fueling inflation were diminishing. On the economic front, data revealed that core machinery orders in Japan, a key indicator of capital spending in the next six to nine months, exceeded expectations in October. Additionally, both manufacturing and services activities showed improvement in December.

The key resistance level appears to be 154.00, with a break above it potentially targeting 154.80 and 155.40. On the downside, 152.70 is the first major support, followed by 151.70 and 150.90 if the price moves lower.

Gold Moves Up, Focus Shifts to Fed Meeting

Gold traded above $2,650 per ounce on Monday as investors awaited the Federal Reserve’s upcoming policy decision later this week, particularly its outlook on monetary policy for 2025. The Fed is widely anticipated to implement another 25bps rate cut in its final meeting of the year, which could boost gold’s attractiveness by lowering the opportunity cost of holding non-yielding assets.

Ongoing geopolitical instability in the Middle East, especially following Israel’s air and ground attacks in Gaza, has further supported gold’s reliability. At the same time, the World Gold Council has forecasted slower growth for gold next year, citing factors such as central bank actions, geopolitical tensions, and economic conditions in major markets like the U.S., China, and India.

The first resistance level will be 2665. In case of this level’s breach, the next levels to watch would be 2700 and 2725. On the downside, 2630 will be the first support level, with 2600 and 2565 being the next levels to observe if the first support level is breached.

Pound Increases Before December Cuts

At the start of the week, GBP/USD rose to 1.263. In October, GDP unexpectedly contracted by 0.1%, matching the decline in September. This highlighted the challenges the government faces in achieving its goal of making the UK the fastest-growing economy in the G7. This objective was reaffirmed by Prime Minister Keir Starmer last week. Additionally, industrial and manufacturing output contracted, contrary to expectations of growth. The Bank of England is expected to keep interest rates steady next week and adopt a cautious approach in 2024. Markets are pricing in only three small rate cuts by the end of 2025.

The first resistance level for the pair will be 1.2720. In case of this level's breach, the next levels to watch would be 1.2770 and 1.2810. On the downside 1.2610 will be the first support level. 1.2550 and 1.2500 are the next levels to monitor if the first support level is breached.

Silver Extends Losses on Industrial Demand

Silver dropped below $31 per ounce, retreating from a one-month peak of $32 in the previous session, continuing its underperformance compared to gold as uncertainty surrounding Chinese industrial demand outweighed support for precious metals following a series of dovish central bank actions. In response to U.S. tariff threats, China is prepared to devalue the yuan, aligning with its commitment to loosen monetary policy, which puts downward pressure on the outlook for silver exports from the world’s largest producer.

China's solar panel industry faces overcapacity, prompting photovoltaic companies to join a government-led self-discipline program aimed at controlling supply, further limiting the outlook for silver demand. On the monetary policy front, markets are anticipating a 25bps rate cut from the Fed this week, following similar cuts from the ECB, BoC, and SNB last week.

The first resistance level will be 30.70. If a breakout happens, the next levels to watch would be 31.50 and 32.30. On the downside, 29.85 will be the first support level. 29.35 and 29.00 are the next levels to monitor if the first support level is breached.