Gold Trades Around $2,650 Before Fed Cut  (12.18.2024)

Markets remained cautious as the Fed prepared for a widely expected 25bps rate cut.

EUR/USD steadied near 1.05, while the yen weakened to 153.7 on speculation of limited policy changes by the Bank of Japan. Gold held at $2,650, eyeing a 28% annual gain, and silver traded below $30.5 due to weak Chinese demand. The British pound rose above $1.27 following strong wage growth, while US retail sales outperformed, adding to speculation about the Fed’s future policy path.

Eurozone Reveals Mixed PMI Data

The EUR/USD pair is holding steady near 1.05 while the dollar index remained unchanged at about 106.9 on Wednesday as caution prevailed ahead of the Federal Reserve’s expected interest rate cut later in the day. Markets are pricing in a 97% probability of a 25 basis point rate reduction, with traders focusing on the updated economic projections and Fed Chair Powell’s remarks after the meeting.

Speculation is growing that the Fed may signal fewer rate cuts for 2025 than previously anticipated, with some expecting a pause as early as January. On the economic front, US retail sales surpassed expectations in November, bolstered by strong consumer spending, while industrial production unexpectedly declined for the third straight month. Meanwhile, investors are also preparing for upcoming monetary policy decisions from the Bank of England and the Bank of Japan this week.

The first resistance level will be 1.0540 level. 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.

Yen Weakens Before BOJ Policy Decisions

The Japanese yen slipped to around 153.7 per dollar, reversing some of the gains from the previous session as investors braced for the US Fed's latest policy decision. The Fed is expected to implement a quarter-point rate cut later today but may signal fewer reductions next year than previously indicated due to persistent inflation.

Speculation is growing that the Bank of Japan may hold off on an interest rate hike when it announces its decision on Thursday, following reports that it sees "little cost" in delaying further tightening. Policymakers appear to prefer waiting for more data to ensure the economy is performing as expected before making additional policy changes. On the data front, Japanese export growth accelerated to a three-month high in November, while imports unexpectedly declined.

The key resistance level appears to be 154.20, with a break above it potentially targeting 154.80 and 155.40. The first major support is 152.70, followed by 151.70 and 150.90 if the price moves lower.

Gold Steadies Near $2,650 Ahead of Fed Decision

Gold held near $2,650 per ounce, staying within a tight trading range ahead of the Federal Reserve's monetary policy announcement later today. While the Fed is widely expected to deliver a 25bps rate cut, traders are focused on clues for next year’s interest rate outlook, amid uncertainty over how the incoming Trump administration’s policies might influence the rate trajectory.

US retail sales exceeded expectations with a 0.7% increase in November, fueling speculation that the Fed might slow down its policy easing. Still, the precious metal has climbed over 28% this year, positioning it for its largest annual gain since 2010, driven by US monetary easing, safe-haven demand, and sustained central bank purchases. Elsewhere, Indian gold imports surged to a record in November following a customs levy cut, with full-year demand from the key consumer expected to rise 7% in 2024, the second-highest since 2015.

The initial resistance is set at the 2665 level. If this level is surpassed, the subsequent levels to observe are 2700 and 2725, respectively. On the downside, the primary support level is 2630. Should this level be broken, the next support levels to keep an eye on are 2600 and 2565.

UK Wage Growth Surpasses Forecasts

The British pound strengthened slightly, trading above $1.27, after UK wage growth surpassed expectations, bolstering the Bank of England's cautious approach to interest rate cuts. Regular pay growth, excluding bonuses, rose by 5.2% in the three months to October, driven by private-sector gains and exceeding the 5% forecast. The central bank had projected a 5.1% increase for the three months to December. Key economic indicators, including inflation and retail sales data, are set to be released later this week. Meanwhile, the Bank of England is also scheduled to announce its monetary policy decision on Thursday, with no changes expected to the benchmark interest rate. Investors currently anticipate only three rate cuts in 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.

Fed Policy and China Slowdown Weigh on Silver

Silver traded below $30.5 per ounce, pressured by expectations of a slower pace of interest rate cuts from the Federal Reserve next year. While the Fed is anticipated to reduce rates by 25 basis points this week, it may signal fewer rate cuts in 2025 due to ongoing inflation concerns. Silver also faced challenges from weak demand in China, the world's largest consumer of metals.

November data revealed slower growth in retail sales and a 17th consecutive month of falling new home prices, underscoring persistent difficulties in the property market. Despite Beijing’s recent stimulus announcements, investor sentiment remained subdued, largely due to the lack of specifics regarding the scale and details of the proposed rescue measures.

Technically, the first resistance level will be 30.70 level. In case of this level’s breach, 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.