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Gold shines brighter amid US dollar weakness

Wednesday, December 20, 2023

Today’s headlines

What’s happening: Gold prices moved higher on Tuesday amid weakness in the US dollar.

What happened: Growing speculations of the Federal Reserve beginning to cut interest rates as early as March exerted pressure on the US dollar, raising the demand for gold.

A decline in the benchmark US 10-year Treasury yields also lent lending support to non-yielding assets like gold.

Why it matters: The Federal Reserve had kept its benchmark interest rates unchanged at its latest meeting last week. Traders widely expect the Fed to start reducing interest rates in early 2024. There are also growing speculations of the central bank cutting rates by as much as 150 basis points next year.

While Fed Chair Jerome Powell suggested rate hikes early next year, several policymakers have pushed back on this.

Weakness in bond yields and rates lower the opportunity cost of holding the non-interest-yielding bullion. The benchmark US 10-year Treasury yields hovered close to their lowest levels since July on Tuesday.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.4% to 102.17 on Tuesday.

Gold exports from Switzerland declined in November, partly due to lower shipments to India, according to data from Swiss customs.

Gold for February delivery gained $11.60 to $2,052.10 per ounce on Tuesday.

In other metals trading, silver for March delivery added 21 cents to $24.32 per ounce, March copper gained 5 cents to $3.90 per pound on Tuesday, platinum jumped around 1.2% to 965.8, and palladium rose sharply to $1,240.90 during Tuesday’s session.

What to watch: Investors await the release of economic reports from the US, which are expected to provide further clarity into the Fed’s future monetary policy. Data on current account, CB consumer confidence and existing home sales will be released today.

The US current account deficit, which shrank by 1.1% to $212.1 billion in the second quarter, is expected to narrow further to $207 billion in the third quarter. Sales of previously owned homes in the US, which fell by 4.1% month-over-month to an annualised rate of 3.79 million units in October, are likely to decline by 0.5% in November.

Data on core personal consumption expenditure index, the Fed’s preferred gauge for inflation, due to be released on Friday, will also remain in focus.

The markets today

European stocks will be in focus today ahead of a basket of major economic reports

Context: European equity markets closed higher on Tuesday, as investors assessed recent economic data.

Details: Data released on Tuesday showed the annual inflation rate in the Eurozone easing to 2.4% in November. This was the lowest inflation level since July 2021 and came in much lower than the previous month’s 2.9%. Core inflation was confirmed at 3.6%, the lowest reading since April 2022.

European markets staged a recovery, with both the STOXX Europe 50 and STOXX Europe 600 indices closing higher on Tuesday.

The travel and leisure sector was the top performer, adding around 1.7% during the session, while oil and gas stocks remained flat after recording gains in the previous session amid concerns over geopolitical issues restricting shipping via the Red Sea.

Shares of OCI gained around 4% on Tuesday, after the Dutch chemical and fertiliser manufacturer announced plans to sell its stake in the Iowa Fertilizer Company to Koch AG & Energy Solutions for $3.6 billion.

Markets are optimistic about major central banks around the world starting to reduce interest rates in 2024.

The STOXX Europe 600 Index rose 0.36% to close at 477.04 on Tuesday, with most sectors closing in the positive zone. London’s FTSE 100 gained 0.31% to settle at 7,638.03, while Germany’s DAX 40 and France’s CAC 40 added 0.56% and 0.08%, respectively.

What to watch: Investors await the release of economic data on current account, construction output and consumer confidence from the Eurozone today. The Eurozone, which recorded a current account surplus of €40.78 billion in September, is expected to report a surplus of €37.0 billion in October. Analysts expect construction output to fall 1% year-over-year in October, following a 0.3% decline in September.

The Eurozone’s consumer confidence indicator, which increased by 0.9 points from the prior month to -16.9 in November, is expected to improve to -16.3 in December.

Other Markets: US trading indices closed higher on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.68%, 0.59% and 0.49%, respectively.

The news shaping the markets

Ukraine President Volodymyr Zelenskyy said the military has requested another 450,000 to 500,000 troops to be mobilised into the army. The news sent the safe-haven US dollar index higher this morning.


Australia’s Westpac-Melbourne Institute Leading Economic Index increased 0.1% in November, following a flat reading in October, which lent support to the AUD/USD forex pair.


The People’s Bank of China held its lending rates at the December meeting, sending the CNY/USD pair lower in forex trading this morning.


Japan’s trade deficit shrank to ¥776.94 billion in November, from ¥2,057,64 billion in the year-ago month. However, exports declined for the first time in three months, contracting 0.2% year-over-year to ¥8,819.59 billion, which exerted pressure on the JPY/USD forex pair.


Colombia’s central bank cut its benchmark interest rate to 13% at its recent meeting, which sent the COP/USD pair lower in forex trading this morning.

What else to watch today

Germany’s GfK consumer climate indicator and producer prices, European Union’s new passenger car registrations, Turkey’s consumer confidence index and government debt, UK’s inflation rate, producer prices change and retail price index, Italy’s current account, Brazil IBC-Br economic activity index, Mexico’s retail sales, US MBA mortgage applications, crude oil inventories, gasoline stocks change and distillate stocks, Russia’s consumer confidence and producer price inflation, China’s foreign direct investment, Spain’s consumer confidence indicator, as well as Argentina’s leading economic index and balance of trade.


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