Gold consolidates on slower Fed rate cut expectations

Asian Markets

Asian markets are facing a difficult session. In China, investor sentiment is dampened by weak retail sales for November, which grew by just +3.0% y/y, falling short of the +4.6% forecast. While industrial production rose by +5.4% y/y, outperforming the expected +5.3%, the overall economic outlook remains weak. House prices in China also continued their downward trend, dropping by -5.7% y/y in November, slightly improving from the previous -5.9%.

In Japan, the economic data showed mixed results. The December manufacturing PMI improved to 49.5 from 49.0, while the services PMI rose to 51.4 from 50.5. Machinery orders for October rose by +2.1% m/m, surpassing the forecast of +1.2%. Despite these positive figures, investor sentiment remains cautious due to global growth concerns.

Currency Market

In the currency markets, the Swiss franc and the Antipodean currencies (AUD, NZD) are showing strength, benefiting from a general risk-off mood. In contrast, the US dollar and the Japanese yen are both under pressure, with the yen being particularly affected by weak economic data from Japan.

As market participants adjust their expectations for future monetary policy ahead of the upcoming FOMC meeting, the US dollar remains in a narrow trading range, with little movement observed across major currency pairs.

Commodities

Gold prices are struggling to break free from a consolidative phase, staying near the one-week low reached earlier. Investors are betting that the Federal Reserve will slow the pace of rate cuts as progress on reducing inflation seems to have stalled. While gold faces downward pressure from this expectation, it is receiving some support due to ongoing geopolitical risks and uncertainties surrounding US President-elect Donald Trump’s policies. These factors may help prevent further downside for gold in the near term.

Meanwhile, silver continues to underperform, remaining near a two-week low and failing to gain significant traction. Despite the broader market uncertainty, silver lacks direction and is struggling to find momentum.

In the energy markets, WTI crude oil prices are rising amid concerns about potential supply disruptions. Expectations of tighter supply, especially due to US sanctions on Russia and Iran, are driving upward pressure on crude prices. The US is reportedly considering further sanctions on Russian oil revenues and dark fleet tankers, which could heighten supply risks and push prices higher. Additionally, crude oil is benefiting from expectations that the Fed will implement a 25-basis-point rate cut this week, which may support global demand.

Outlook

As the European session approaches, market participants remain cautious, with key economic events ahead, particularly the FOMC policy decision on Wednesday. Investors are likely to adopt a wait-and-see approach, looking for insights on the future path of interest rates and the global growth outlook.