Year Ahead – Gold’s Golden Year: Will It Shine Even Brighter in 2025?

Central Bank

Summary:

The People’s Bank of China will improve how it manages exchange rate expectations and guard against any shocks next year, according to a senior bank official.

The PBOC will “step up expectation management on exchange rates and vigorously respond to external shocks,” the head of the monetary policy department Zou Lan told state media in an interview. In addition, the central bank will “resolutely prevent risks of overshooting in the exchange rate.”

The PBOC’s new “moderately loose” monetary policy has increased its ability to respond to growth challenges, Zou said, days after the bank unveiled the new stance and a day after the government said the monetary authority would look to loosen policy in the near future to support the economy.

No details were announced on the possible timing of further monetary easing, but the statement also repeated the usual pledge to keep the yuan “basically stable,” likely signaling the central bank will make an effort to slow depreciation of the Chinese currency as it loosens monetary policy.

Pressure on the yuan has intensified since the re-election of Donald Trump, who has threatened to impose tariffs on China and other countries. Some investors have speculated Beijing will abandon its current policy of maintaining a stable currency to compensate for any impact this could have on its economy.

The yuan has fallen sharply since mid-October and slid Thursday after a media report that the authorities were considering letting it depreciate in response to the threat of a trade war with the US. The onshore yuan lost 0.1% to 7.2795 against the dollar on Friday, with its offshore peer down 0.2%.

Source:Bloomberg News

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Warren Takunda

Economic

The pound fell on Friday after data showed the British economy shrank unexpectedly in October, which could prompt traders to attach a greater chance to the prospect of speedier rate cuts by the Bank of England next year.

Official data showed UK economic activity contracted 0.1% in October. A Reuters poll of economists had forecast a rise of 0.1% last month, from September's 0.1% fall.

This was the first back-to-back decline since the onset of the COVID-19 pandemic in 2020, when Britain imposed the first lockdown.

Sterling initially fell as much as 0.43% after the numbers and was last down 0.3% at $1.2635.

"The market will be surprised, this is not part of the game plan. However, the outlook for 2025 does look more encouraging," Neil Jones, managing director, FX sales and trading for financial institutions, TJM Europe, said.

"I would expect further limits to any pound sell-off and gilt rally. Wages and inflation will likely remain solid and dissuade the BOE from shifting lower, relative to the Fed and ECB expectations," he said.

The pound was last down 0.4% against the euro at 82.895. Sterling is set for a second monthly gain against the euro, which has fallen 0.6% in December so far to trade around its weakest in over eight years.

In part, it is the expected difference in interest rates in Britain and the euro zone, as the BoE is likely to move more slowly on cuts than the European Central Bank.

The ECB cut rates as expected by a quarter point on Thursday, but sounded a cautious note on the outlook for inflation, which might mean it does not have the scope to deliver the almost five cuts markets have priced in for 2025.

The Dow and S&P 500 each lost more than half a percent, and the Nasdaq shed more than six tenths of a percent to dip back below 20,000, a milestone it crossed a day earlier.

The BoE, meanwhile, may find it needs to act more swiftly to head off a more protracted slowdown in the British economy.

Recent data on business activity showed a deterioration in the manufacturing sector. Grocery inflation is creeping up, squeezing the budgets of British households, while the labour market is sputtering.

Data earlier this week showed job vacancies have dried up faster in the UK than in other similar countries over the past year.

A separate report on employment on Dec. 9 showed demand for UK workers crashed in November, after the Labour government's first budget, in a sign of the impact of the tax increases for employers that it contains.

Source: Reuters

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Commodity

Economic

A spectacular year for the precious metal

It’s been a phenomenal year for gold, with prices rising by almost 30% and hitting numerous new all-time highs. Geopolitical uncertainties and the US presidential elections drove prices to a peak of $2,790 per ounce on October 30. On the other hand, gold prices experienced a dip when Donald Trump was re-elected, as uncertainty about a contested election decreased, and investors redirected their focus to the rising performance of the US dollar.

Year Ahead – Gold’s Golden Year: Will It Shine Even Brighter in 2025?_1

Impact of Trump’s re-election

Donald Trump’s re-election and the subsequent reduction in market uncertainty led to a retreat in gold prices as investors shifted toward the strengthening US dollar. The precious metal may face a significant negative movement between $2,200-$2,600 through the end of the first quarter of 2025. Following Trump’s recent victory, gold prices have seen a decline due to rising bond yields and a stronger US dollar, which make gold less appealing for investors. However, gold often serves as a safe-haven asset during times of uncertainty. If Trump’s policies lead to increased geopolitical risks or economic instability, demand for gold could rise again as investors seek to protect their wealth.

Gold prices pulled back by more than 3% in November, representing their most significant monthly decline since September 2023. Apprehension that elevated tariffs under a forthcoming Donald Trump administration may result in sustained higher interest rates is the market’s biggest fear.

Federal Reserve’s influence

The Federal Reserve’s monetary policy will continue to have a significant impact on gold prices in 2025. If inflation in the US declines and the Fed cuts interest rates further as expected, this will reduce the opportunity cost of holding non-yielding assets, making them more attractive to investors. Additionally, lower interest rates can lead to a weaker US dollar, further boosting demand for gold as it becomes cheaper.

Year Ahead – Gold’s Golden Year: Will It Shine Even Brighter in 2025?_2

But persistent inflation and the Fed’s response to it can also drive gold prices higher. If the Fed’s policy stance is seen as insufficient to curb inflation, investors may turn to the precious metal as a hedge against rising prices.

Most economists are concerned that President-elect Trump’s proposed policies will lead to increased inflation, threatening to derail the Fed’s rate-cutting cycle.Investors have already drastically scaled back their rate cut bets, slashing the odds in half, to about 75 basis points by the end of 2025, on the expectation of a spike in inflation from his proposed policies, which include increased tariffs and tax cuts.

Year Ahead – Gold’s Golden Year: Will It Shine Even Brighter in 2025?_3

Source:XM

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Justin

Economic

Forex

(Dec 13): Germany’s economy will hardly grow in 2025 after shrinking again this year, according to fresh forecasts from Bundesbank.

Gross domestic product (GDP) will fall by 0.2% in 2024, it said on Friday — slashing a June prediction for 0.3% growth. Output will expand by just 0.2% in 2025, rather than the 1.1% seen earlier, and could even fall if US trade tariffs materialise.

“The German economy is not only struggling with persistent economic headwinds, but also with structural problems,” Bundesbank president Joachim Nagel said, highlighting the industrial sector in particular. “The labour market, too, is now responding noticeably to the protracted weakness of economic activity.”

The forecasts worsen an already gloomy outlook for Europe’s biggest economy as long-standing struggles among its industrial and car giants are compounded by political turmoil before snap elections in February and the dangers posed by Donald Trump’s return.

The Bundesbank expects the economy to stagnate this winter and only begin to slowly recover during next year. For 2026 and 2027, it forecasts growth of 0.8% and 0.9%.

Risks are to the downside, however, specifically from Trump’s policies. Germany’s “strong reliance on exports makes it particularly vulnerable to the decline in foreign demand resulting from the global trade losses triggered by the restrictive trade policy,” the Bundesbank said.

Overall, economic output in 2027 could be 1.3-1.4% below the baseline scenario due to a US policy shift, the report said. According to different models, a trade conflict could even cause German GDP to stagnate or shrink again in 2025.

Nagel has warned in the past that Trump’s levies could cause another GDP contraction in 2025.

On inflation, the Bundesbank revised down its outlook from June. It expects consumer-price growth to remain elevated in 2025, cooling only slightly to 2.4% from 2.5%. In the coming years, however, it sees inflation gradually returning to 2%.

“There are two main factors at work here: The previous tightening of monetary policy and decreasing price pressure from labor costs,” Nagel said.

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Source: Theedgemarkets

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Warren Takunda

Economic

The rally on the European stock markets stalled, with a flat weekly performance, due to rising global government bond yields.

The US CPI data for November showed that inflation rose for the second consecutive month, reinforcing expectations for a gradual rate cut by the Federal Reserve.

The European Central Bank delivered a 25 basis point rate cut for the third straight time this year but emphasised continuous restrictive monetary policy. However, traders see an accelerating easing pace, predicting a 125 basis-point cut in 2025.

Major benchmark government bond yields in the Eurozone jumped on Thursday following the ECB’s hawkish stance, which pressured equity valuations.

The German 10-year government bond yield surged 8 basis points to 2.2%, its the highest in two weeks.

Meanwhile, yields of US government bonds resumed rallying this week, rising for the past four trading days. The US dollar strengthened further, sending the euro down to a two-week low against the greenback.

Additionally, the Bank of Canada (BOC) and the Swiss National Bank (SNB) both cut the interest rate by 50 basis points. The BOC signalled a slowdown in the easing cycle, while the SNB remained dovish as markets expected a quarter percentage cut by the bank.

In commodities, both gold and crude oil rose following China’s vow to adopt a “proactive fiscal policy,” despite a pullback on Thursday.

Bitcoin hovered around the $100,000 threshold as the Trump-led rally continued.

Europe

Major European benchmarks were slightly lower this week, with the pan-European Stoxx 600 index declining 0.24%, France’s CAC 40 slipping by 0.08%, Germany’s DAX fell 0.2%, and the UK’s FTSE 100 gained 0.04%.

Political instability and the ECB’s rate cut were the focus of markets. However, the regional market trends continued to mirror Wall Street movements.

Despite broad downside pressure, European consumer stocks experienced a strong rally amid China’s stimulus hopes.

On a weekly performance, LVMH rose 6.6%, Hermes was up 3.8%, L’oreal climbed 3.3%, and Christian Dior rose 5.9%. On the other hand, the energy and industrial sectors were under pressure due to weak oil and industrial metal prices.

Safran slumped 9%, Rolls-Royce fell 3.3%, and Shell slipped 1% over the past five trading days.

On the economic front, Germany’s November final CPI was confirmed at a 2.2% increase year on year, up from 2% in the previous month.

The data may encourage the ECB to stay restrictive on its monetary policy.

However, global factors, particularly Trump’s potential tariffs will likely impact the Eurozone’s growth outlook and promote faster rate cuts.

Wall Street

The US stock markets are mixed this week. On a weekly basis, the Dow Jones Industrial Average fell 1.63%, the S&P 500 slid 0.64%, and the Nasdaq Composite climbed 0.23%.

While the post-election rally continued in technology shares, most other sectors were in the red.

In the S&P 500, nine out of eleven sectors were in the red, with the interest-rate sensitive sector, utilities, leading losses, down 3.4% weekly.

The energy sector was the second biggest loser, sliding 3%, followed by Healthcare and industrial, both down 2.3% from last week.

In sharp contrast, the growth sectors – consumer discretionary and communication services, comprising big technology shares such as Tesla and Alphabet, rose 3.5% and 2.4% respectively over the past five trading days.

Tesla’s share price jumped 13% weekly after hitting a record high on Wednesday, despite a slight pullback on Thursday. The stock is up 69% since Trump won the US election due to CEO Elon Musk’s support for his presidential campaign.

Alphabet’s stocks jumped 11% weekly after Google unveiled the most advanced quantum computing chip, Willow.

The US November headline CPI came in at 2.7% year on year, up from 2.6% in the previous month, and in line with expectations.

The data, however, did not alter expectations for the Fed to deliver a 25 basis point rate cut next week.

However, markets see the pace as a more gradual pace than previously projected. This sent the US 10-year government bond yield climbing to 4.33% on Thursday, the highest since 25 November.

China

Chinese stock markets rallied amid further stimulus policies in 2025. At the annual Politburo and economic planning conference, top Chinese officials signalled to adopt a “proactive fiscal policy and moderately loose monetary policy.”

These terms have not been used since the global financial crisis in 2008. Markets highly expect the Chinese government to deliver more rate cuts and more accommodative fiscal policies in the coming year.

In contrast to other markets, Chinese benchmarks all posted weekly gains, with the China A50 up 1.8%, and the Hang Seng Index rising 1.6%.

Source: Euronews

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Warren Takunda

Stocks

Asian shares fell on Friday, tracking Wall Street’s decline in response to potentially discouraging data on the economy.

U.S. futures and oil prices were little changed.

Chinese leaders wrapped up a two-day economic policy meeting in Beijing on Thursday. Investors were hoping for major moves to support the economy, but the readouts from the closed-door meetings of top leaders lacked details. State media reported that leaders agreed to increase government borrowing to finance more spending and to ease credit to encourage more investment and spending.

“Chinese authorities have been stuck in a more reactionary policy mode, as the uncertainty of U.S. tariff plans makes it difficult for policymakers to make any commitments just yet,” Yeap Jun Rong of IG said in a commentary.

The Hang Seng in Hong Kong sank 2% to 19,994.25, and the Hang Seng Properties index lost 2.7%. The Shanghai Composite index skidded 2% to 3,391.88.

Japan’s benchmark Nikkei 225 slipped 1% to 39,47.44. A survey by the Bank of Japan showed that business sentiment among large Japanese manufacturers was stronger than expected in the fourth quarter of this year, though overall the results were lackluster.

Elsewhere in Asia, Australia’s S&P/ASX 200 shed 0.4% to 8,296.00. South Korea’s Kospi added 0.5% to 2,494.46.

On Thursday, the S&P 500 slipped 0.5% to 6,051.25, marking its fourth loss in the last six days. The index had been rallying toward one of its best years of the millennium.

The Dow Jones Industrial Average lost 0.5% to 43,914.12, and the Nasdaq composite sank 0.7% to 19,902.84.

A report said more U.S. workers applied for unemployment benefits last week than expected. A separate update, meanwhile, showed that inflation at the wholesale level, before it reaches U.S. consumers, was hotter last month than economists expected.

Neither report rings warning bells, but they did dilute hopes that the Federal Reserve will keep cutting interest rates. That expectation has driven the S&P 500 to 57 all-time highs so far this year, driven by the fact that inflation has been slowing while the economy is solid enough to stay out of a recession.

Traders are widely expecting the Fed will ease its main interest rate at its meeting next week. That would be a third straight cut by the Fed after it began lowering rates in September from a two-decade high. It’s hoping to support a slowing job market after getting inflation nearly all the way down to its 2% target.

Lower rates would give a boost to the economy and to prices for investments, but they could also provide more fuel for inflation.

A cut next week would have the Fed following other central banks. The European Central Bank cut rates by a quarter of a percentage point on Thursday, as many investors expected, and the Swiss National Bank cut its policy rate by a steeper half of a percentage point.

Following its decision, Switzerland’s central bank pointed to uncertainty about how U.S. President-elect Donald Trump’s victory will affect economic policies, as well as about where politics in Europe is heading.

Trump has talked up tariffs and other policies that could upend global trade. He rang the bell marking the start of trading at the New York Stock Exchange on Thursday to chants of “USA.”

In other dealings early Friday, U.S. benchmark crude oil picked up 12 cents to $70.14 per barrel. Brent crude oil, the international standardgained 1 cent to $73.42 per barrel.

The U.S. dollar rose to 152.88 Japanese yen from 152.55 yen. The euro fell to $1.0462 from $1.0472.

Source: AP

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Alex

Commodity

Oil prices edged higher on Friday and were on track to record their first weekly gain in three weeks, as the possibility of additional sanctions on Iran and Russia raised supply concerns. However, the potential for an oil market glut next year capped the gains.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.08 per cent higher at $73.54 a barrel at 1.06pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 0.23 per cent at $70.18 a barrel.

The Biden administration in the US is reportedly considering stricter sanctions on Russia’s profitable oil trade, aiming to further pressure the Kremlin’s war efforts just weeks ahead of Donald Trump’s return to the White House.

Details of the possible new measures are still being worked out, but President Joe Biden’s team is considering restrictions that might target some Russian oil exports, Bloomberg reported on Wednesday, citing sources.

Meanwhile, the EU has approved a 15th sanctions package, targeting Russia’s shadow tanker fleet and Chinese companies supplying drones to Moscow.

Western countries have also threatened to slap further sanctions against Iran, one of the world’s largest oil producers, over its expanding nuclear programme.

Pressure on Iran has increased, and its influence in the Middle East has weakened, particularly due to recent setbacks faced by its proxy groups, Hamas and Hezbollah, as well as the ouster of Syrian dictator and key ally Bashar Al Assad.

Oil prices have dropped in the second half of this year as traders focus on demand from China and the possibility of a supply surplus in 2025.

"The general market consensus is for a strongly oversupplied oil market in 2025, which is likely the reason why market positioning is so low and prices are trading at the lower end of the 2024 trading range," Giovanni Staunovo, strategist at UBS said in a research note on Wednesday.

The International Energy Agency has revised its oil demand forecast for next year upwards, citing the impact of China's stimulus measures, but noted that the growth rate is likely to remain modest.

The Paris-based agency expects global crude demand to grow by 1.1 million barrels per day in 2025, up from its previous forecast of a growth of 990,000 bpd.

The IEA said that oil supply will grow by 1.9 million bpd next year, even without the unwinding of Opec+ production cuts.

Last month, the alliance of oil-producing countries announced that it will extend its voluntary output cuts of 2.2 million bpd until the end of March next year.

After that, the supply curbs will be gradually phased out on a monthly basis until the end of September 2026 to "support market stability", the group said following its December 5 meeting.

Opec+ also extended its oil production cuts of 2 million bpd and 1.65 million bpd by a year to the end of 2026.

On Wednesday, Opec reduced its global oil demand growth forecast for 2024 for the fifth consecutive month, marking the largest downgrade so far, citing weaker-than-expected demand in the third quarter across many regions.

The group now expects oil consumption to rise by 1.61 million bpd this year, down from its previous estimate of an increase of 1.82 million bpd.

Source: THENATIONALNEWS

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Year Ahead – Gold’s Golden Year: Will It Shine Even Brighter in 2025?

Source:Bloomberg News

Sterling Falls After Shock Contraction in UK GDP

Source: Reuters