Gold Hits a Two-week High
Gold ( XAU/USD ) price rose by 0.98% on Monday, as Peoples Bank of China (PBOC) reported that it restarted to buy the bullion in November.
"The market is getting hopeful that we could see other central banks follow suit, and we could see a resumption of record territory buying", said Bart Melek, head of commodity strategies at TD Securities.
Official data showed that China's gold holdings rose to 72.96 million fine troy ounces at the end of November, up from 72.80 million a month earlier. The PBOC was the world's largest official sector buyer of gold in 2023. The resumption of its purchases may support Chinese investors' demand, which has been muted since the PBOC paused its 18-month buying streak in May.
"The resumption will send a signal that the PBOC has grown accustomed to these record high price levels and is prepared to build reserves regardless", said Ole Hansen, head of commodity strategy at Saxo Bank.
Meanwhile, political instability in the Middle East—particularly in Syria— supported safe-haven flows into gold. Also, the anticipation that the US Federal Reserve Fed will cut interest rates next week added to the bullish sentiment.
XAU/USD was rising during the Asian and early European trading sessions. Today, the macroeconomic calendar is relatively uneventful. Traders should monitor the developments in the Middle East and rely mostly on technical analysis. ‘Spot gold may break resistance at $2,675 per ounce and rise to $2,696’, said Reuters analyst Wang Tao.
Euro Moves Sideways Ahead of Key Economic US Data
The euro ( EUR/USD ) lost 0.15% against the US dollar on Monday as investors awaited US inflation data later this week.
While markets have priced in a 25-basis-point (bps) rate cut by the US Federal Reserve (Fed) next week as a near certainty, investors are waiting for US Consumer Price Index (CPI) data on Wednesday for additional clues. Data on Friday showed US job growth surged in November, but a rise in the unemployment rate towards 4.2% pointed to an easing labour market that should allow the Fed to cut interest rates again this month. The upcoming CPI data will be crucial in confirming or altering these expectations.
Fundamentally, EUR/USD is in a major downtrend, and investors continue to lack good reasons to buy the euro. At the same time, the fact that EUR/USD hasn't dropped towards new lows since 22 November gives hope that a potential currency recovery may be on the horizon. Indeed, China's pledge to embrace a moderately loose monetary policy has boosted European sectors exposed to China, with mining and luxury stocks rising on Monday.
EUR/USD was relatively unchanged during the Asian and early European trading sessions. Although the macroeconomic calendar is rather uneventful today, some minor European data released may add a little volatility to the market. German final CPI data is due at 7:00 a.m. UTC, and the Italian Industrial Production report is due at 9:00 a.m. UTC. The most important release this week is tomorrow's US CPI report, so traders will probably refrain from opening large orders in USD pairs on Tuesday.
Japanese Yen Gains on Uncertainty About US and Japanese Interest Rate Paths
USD/JPY gained 0.82% on Monday amid ongoing uncertainty about the timing of the next Bank of Japan (BOJ) interest rate hike.
The market remains uncertain whether the central bank will raise interest rates in December or January. Kazuo Ueda, the BOJ Governor, indicated that a rate increase is likely in the near future, as the economy is performing as expected. However, another member of the BOJ board, Toyoaki Nakamura, expressed concerns about unsustainable wage growth and other indications of economic weakness, adding to the overall uncertainty. Still, recent data shows that Japan's economy expanded by 0.3% over the three months ending September, exceeding initial estimates and expectations. With stronger-than-expected wage numbers reported last week, these economic indicators suggest that the BOJ may be more likely to alter its policy stance.
Data released on Monday showed that US inflation expectations for the next year increased towards 3% in November, up from 2.9% in October. This indicates that people remain concerned about persistent price pressures. Additionally, last week's figures revealed stronger-than-anticipated job growth in November. Still, the US unemployment rate rose towards 4.2%, indicating a softening of the labour market that could allow the Federal Reserve (Fed) to lower 0interest rates again this month. According to Kyle Rodda, a financial market analyst, one of the primary market themes at present is the risk of persistently high inflation and the possibility that the Fed may not reduce rates significantly in the co1ming year. Despite these mixed signals, market participants expect an 86% chance that the Fed will reduce rates by 25 basis points this month. However, the future outlook for 2025 remains highly uncertain.
USD/JPY has been declining during Asian and early European trading hours. Today the Japanese Producer Price Index will come out at 11:50 p.m. UTC. Higher-than-expected figures will be negative for USD/JPY, while lower data may support the pair.