On Tuesday (December 17), during the early Asian trading session, spot gold fluctuated narrowly around $2,652 per ounce. On Monday, the gold price briefly reached a weekly low of $2,643 per ounce but subsequently rebounded to around $2,652 per ounce. The dollar faced resistance at higher levels, and geopolitical tensions offered some support to gold prices. However, with the upcoming Federal Reserve policy meeting, market sentiment remained cautious, and overall trading was restrained.
The market widely expects the Federal Reserve to implement the third rate cut of the year at this meeting, along with providing further guidance on the interest rate path for 2025. The Fed's decision will have a direct impact on the dollar and gold prices. Additionally, investors are monitoring China's increased gold purchases and the possibility of more economic stimulus policies. As the world's largest gold consumer, China's policy stimulus expectations provide potential support for gold prices.
Geopolitical Risks Escalate
The tense geopolitical situation provides safe-haven demand support for gold. The escalating tensions between Israel and Syria saw the Israeli government announce on Sunday that it would significantly increase its population deployment in the Golan Heights region due to potential threats from Syria. On the same day, Israeli fighter jets carried out airstrikes in northern Gaza, resulting in 5 deaths and several injuries.
The conflict between Russia and Ukraine is also intensifying. On the 16th, the Russian Ministry of Defense reported that Russian forces had successfully taken control of a settlement in the past day and targeted Ukrainian military infrastructure, including ammunition depots and electronic warfare facilities. Meanwhile, Ukraine reported that over 200 skirmishes occurred between Ukrainian and Russian forces on the front lines in the past day, with the intensity of fighting continuing to escalate.
U.S. Economic Data: Manufacturing Weakness, Strong Services Sector
Recent economic data shows that U.S. manufacturing is under downward pressure, while the services sector is performing strongly. According to S&P Global, the December preliminary manufacturing PMI fell to 48.3, below market expectations of 49.8, indicating that manufacturing activity has continued to contract, with the output index dropping to its lowest level since May 2020. Furthermore, a significant decline in the index measuring new factory orders further highlights the pressure on manufacturing.
Notably, U.S. manufacturers are facing challenges from rising input costs. The December manufacturing input prices index rose to 59.1, the highest level since November 2022, significantly above the November figure of 52.3. The market is concerned that if tariff policies tighten further, rising imported raw material prices will exacerbate inflationary pressures.
Meanwhile, the U.S. services sector is thriving, driven by optimism from the November presidential election, with the preliminary services PMI surging to 58.5, a 38-month high. Overall, the composite PMI, which tracks both manufacturing and services sector performance, rose from 54.9 to 56.6, indicating robust economic activity.
Federal Reserve Policy Meeting: Focus on Rate Cut Path and Outlook Guidance
The major market focus this week is the Federal Reserve policy meeting. The market anticipates the Fed to cut rates by 25 basis points while possibly signaling further rate cut paths for 2025. However, persistent inflationary pressures and recent strong economic activity data may prompt the Fed to adopt a more cautious approach to easing policies.
In particular, labor shortages have led to longer supplier delivery times, further inflating manufacturing costs as part of the inflation challenge. There is market divergence over the Fed's rate cut path for 2025. Some analysts anticipate prolonged policy tightening, while some investors expect the Fed to resume the easing cycle after skipping a rate cut in the first quarter of next year.
Gold Market Outlook: Interplay of Policy, Economy, and Geopolitical Factors
As the Federal Reserve policy meeting approaches, the dollar may continue to face short-term pressure, which will provide some support for gold. Moreover, the ongoing escalation of geopolitical tensions, including those in the Middle East and Russia-Ukraine conflict, heightens demand for safe-haven assets. At the same time, China's gold purchases and policy stimulus expectations also offer potential benefits for gold prices.
In the current context, investors need to closely monitor policy statements following the Federal Reserve meeting, U.S. economic data performance, and further developments in geopolitical situations, as these factors will determine the future trajectory of gold prices.
Gold prices show signs of slowing decline ahead of the Federal Reserve policy meeting, as the market awaits clear policy signals. With the dollar facing resistance and geopolitical tensions rising, gold's safe-haven attributes may continue to play a role, and investors should cautiously navigate market volatility.
