Gold hits one-week peak as Fed signals rate cuts next year

Dec 14 (Reuters) – Gold prices extended gains to a one-week high on Thursday after the U.S. Federal Reserve flagged an end to its tightening cycle and signalled lower borrowing costs in 2024, sending the dollar and bond yields lower.

FUNDAMENTALS

* Spot gold was up 0.5% at USD 2,036.99 per ounce, as of 0045 GMT, after rising 2.4% on Wednesday. US gold futures jumped 2.7% to USD 2,051.10.

* The Fed kept interest rates steady for the third meeting in a row, as was widely expected.

* A near unanimous 17 of 19 Fed officials project the policy rate will be lower by the end of 2024 than it is now, with the median projection showing the rate falling three-quarters of a percentage point from the current 5.25%-5.50%.

* Fed Chair Jerome Powell said the central bank was likely done raising interest rates, but kept open the option to act again if needed.

* The dollar fell to a two-week low against its rivals, making gold less expensive for other currency holders, while the US benchmark 10-year yield dropped to its lowest level since August.

* Markets are now pricing in around a 73% chance of a rate cut in March from the Fed, according to CME FedWatch tool.

* Gold, which pays no interest, tends to benefit when interest rates fall as this reduces the opportunity cost of holding bullion.

* Indicative of sentiment, SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund, said its holdings rose 0.26% to 877.96 metric tons on Wednesday from 875.65 tons on Tuesday.

* Market participants now await other central bank decisions, including the European Central Bank and the Bank of England later in the day.

* Spot silver rose 0.8% to USD 23.94 per ounce, while platinum gained 0.3% to USD 937.35 and palladium climbed 0.9% to USD 1,000.01.

(Reporting by Brijesh Patel in Bengaluru; Editing by Rashmi Aich)

Gold rises as Fed rate-cut prospects dent dollar, bond yields

Dec 14 – Gold prices extended gains to a one-week high on Thursday after the US Federal Reserve flagged an end to its tightening cycle and signaled lower borrowing costs in 2024, sending the dollar and Treasury yields tumbling.

Spot gold was up 0.2% at USD 2,031.28 per ounce, as of 0130 GMT, after rising 2.4% on Wednesday. US gold futures jumped 2.4% to USD 2,045.50.

“The Fed’s dovish pivot stuck a rocket under gold prices, which used USD 1,980 support as a springboard to break its USD 2,000 per ounce glass ceiling,” said Matt Simpson, a senior analyst at City Index.

“This certainly places the US dollar in a weak spot heading into the back of the year, a month which tends to generate bearish returns for USD and benefit gold.”

The Fed kept interest rates steady for the third meeting in a row, as was widely expected. A near unanimous 17 of 19 Fed officials project the policy rate will be lower by the end of 2024 than it is now.

Meanwhile, Fed Chair Jerome Powell said the US central bank was likely done raising rates, but kept open the option to act again if needed.

The dollar fell to a two-week low against its rivals, making gold less expensive for other currency holders, while the US benchmark 10-year yield dropped to its lowest level since August.

Markets are now pricing in around a 73% chance of a rate cut in March from the Fed, according to CME FedWatch tool.

Lower interest rates tend to support non-interest-bearing bullion.

Market participants now await other central bank decisions, including the European Central Bank and the Bank of England later in the day.

Spot silver rose 0.4% to USD 23.83 per ounce, while platinum gained 0.2% to USD 936.15 and palladium climbed 0.6% to USD 998.64.

((Brijesh.Patel1@thomsonreuters.com; Within U.S. +1 651 848 5832, Outside U.S. +91 9590227221; Reuters Messaging: Brijesh.Patel1.thomsonreuters.com@reuters.net))

Dollar ticks up as traders wait on Fed for rate cut timing clues

TOKYO, Dec 13 – The dollar ticked up slightly versus major rivals on Wednesday, as traders braced for the conclusion of a Federal Reserve policy meeting that could provide clues on when the U.S. central bank will begin lowering interest rates.

China’s yuan edged down after an agenda-setting meeting of the country’s top leaders failed to deliver strong stimulus measures to shore up economic growth.

New Zealand’s dollar slumped after softer-than-expected inflation data suggested its central bank may not have to follow up on its threat to hike rates.

The U.S. dollar index, which gauges the currency against six leading counterparts, added 0.1% to 103.86 as of 0540 GMT, recouping a little of its 0.31% drop overnight.

The dollar rose 0.07% to 145.555 yen, following a 0.5% decline in the previous session. It rose slightly against the euro to USD 1.0789, after losing about 0.28% on Tuesday. It also edged up against sterling to USD 1.2554.

Fed officials will give updated economic and interest rate projections later in the day following a meeting where analysts and investors expect rates to stay on hold, and investors will focus on how the central bank sees the economy holding up.

In particular, investors will be watching to see if Fed Chair Jerome Powell pushes back against the prospect of interest rate cuts in the first half of 2024.

Recent signs have pointed to a soft landing, but data overnight showed consumer prices unexpectedly rising in November.

Traders currently price in a quarter point rate cut in May.

“The Fed hasn’t said they are cutting rates, they have said they are data dependent, but the market is already acting like rate cuts are baked in,” said James Kniveton, senior corporate FX dealer at Convera.

“If the Fed does push back tonight on those rate cut expectations, the dollar index may have an opportunity move back into the October range of 105-107.”

Later this week the European Central Bank, Bank of England, Norges Bank and the Swiss National Bank will also decide policy, with Norway considered the only one which could potentially raise rates. There is also a risk the SNB could dial back its support for the franc in FX markets.

The Bank of Japan’s (BOJ) policy meeting comes next week, and the yen has been volatile on speculation the central bank is drawing close to ending its negative rate policy. Rising hopes this may occur next Tuesday were dashed after Bloomberg reported this week that BOJ officials see little need to rush to the exit.

“If history is any guide, USD/JPY will trade heavily into next week’s BoJ and regardless whether there is a (policy) tweak, USD/JPY will likely rebound in the wake of their meeting,” Richard Franulovich, head of FX strategy at Westpac, wrote in a client note.

“Markets have been underwhelmed with every policy tweak and (BOJ Governor Kazuo) Ueda has dressed up each adjustment in a dovish narrative.”

New Zealand’s dollar slid 0.61% to USD 0.6097, and earlier touched $0.6094 for the first time since Nov. 28.

The Aussie edged down slightly to USD 0.65555.

The spot yuan was changing hands at 7.1831 per dollar, 69 pips weaker than the previous late session close.

Elsewhere, leading cryptocurrency bitcoin continued to consolidate around USD 41,000 after pulling back from the highest since April 2022 at USD 44,729, reached on Friday.

(Reporting by Kevin Buckland; Editing by Michael Perry and Jamie Freed)

Powell: Naughty or nice?

The Federal Reserve’s rate decision on Wednesday is all but a done deal, so that leaves Chair Jerome Powell’s language and the central bank’s dot plot of future policy as the main focus.

The world’s most powerful central banker has a tightrope to walk, with Tuesday’s U.S. inflation print doing little to alter views for the timing of rate cuts next year.

Some investors are hoping Christmas comes early in the form of a Fed pivot, and Wall Street on Tuesday notched fresh 2023 highs

It’s up to Powell then to convince markets – or not – that it is “premature to conclude” that the Fed’s job is done.

Market pricing shows a 75% chance of a cut in May, according to the CME FedWatch tool, and analysts at Goldman Sachs over the weekend brought forward their forecast of a first cut to the third quarter of next year from the fourth quarter previously.

In Asia, China said it will step up policy adjustments to support an economic recovery in 2024 following an agenda-setting meeting of the country’s top leaders, though those signals failed to excite investors and Chinese stocks declined .CSI300.

Still, with all eyes on Powell, tonight’s events could be make or break for world stocks .MIWD00000PUS, which are up more than 1% for the month thus far.

December has historically been a good period for stocks, save for last year where the MSCI world equity index lost 4% and 2018, when it fell 7% during the month. The Fed hiked rates four times that year.

The European Central Bank (ECB), the Bank of England (BoE), the Swiss National Bank and Norges Bank are next in line after the Fed, with steady outcomes expected for all on Thursday, though by just a margin for Norway.

ECB hawk Isabel Schnabel told Reuters last week the central bank can take further interest rate hikes off the table given a “remarkable” fall in inflation, while British wage growth slowed by the most in almost two years, welcome news for the BoE.

Investors will first have to cross Wednesday’s hurdle before knowing if policymakers across the globe will take cues from the Fed.

The ball’s in Powell’s court.

Key developments that could influence markets on Wednesday:

– UK GDP estimates (October)

– Euro zone industrial production (October)

– Federal Reserve policy decision

(By Rae Wee. Editing by Sam Holmes)

Why are US stocks sluggish? Some blame a looming USD5 trillion options expiration

NEW YORK, Dec 12 – Dealers squaring their books ahead of an options expiration that is set to be the largest on record for S&P 500-linked derivatives may be helping to tamp down swings in US stocks, market participants said.

Some USD 5 trillion in US stock options are set to expire on Friday, 80% in S&P 500-linked contracts – the largest such expiration in at least 20 years – according to Asym500 MRA Institutional, a unit of derivatives strategy and execution firm Macro Risk Advisors.

While such events can exacerbate volatility, strategists say market participants’ behavior ahead of the upcoming expiration has been muting stock gyrations and may be one reason equities have traded in a tight range over the last few weeks.

The S&P 500 is up 21% this year, following a nearly 13% rally from its October lows. More recently, however, market moves have been subdued.

The benchmark index has not logged a greater than 1% move in either direction for 19 straight sessions, the longest such streak since early August. At the same time, the Cboe Volatility Index stands at 12.07, a near 4-year low.

Another example of the market’s sluggish trading can be found in the 10-day realized volatility for the S&P 500, which is how much the index has swung over the last 10 sessions.

That measure stands at 6.8%, after touching a low of 4.5% in late November. By comparison, it stood as high as 22.5% in March, when a regional banking crisis rocked markets.

The positioning of options dealers who act as intermediaries between buyers and sellers of derivatives has been one factor in keeping stock swings in check.

Options trading volume is on pace for a record year with average daily volume of 44 million contracts, according to data from clearing house OCC.

That volume has been boosted in part by the popularity of exchange-traded funds (ETFs) that sell options to generate income that have doubled in size in 2023 and now control about USD 60 billion, according to a Nomura analysis.

Robust options selling activity by these ETFs has left dealers loaded with options contracts going into the last expiration of the year.

In market parlance, the dealers are net long “gamma,” and must continuously sell stock futures when equities rally and buy futures when markets sell off to keep their position neutral.

With the huge amount of options set to expire, that buying and selling has had a knock-on effect of keeping stocks in a tighter trading range, market participants said.

The dealers’ positioning “is more than likely to arrest any deeper selloff between now and year-end,” Nomura strategist Charlie McElligott said in a note on Tuesday.

Market participants have pinned the muted stock moves on other factors as well, including volatility targeting funds and commodity trading advisers, as well as the VIX’s historical tendency to stay subdued once it hits the bottom of its trading range.

The lull in volatility could extend to Wednesday’s Federal Reserve meeting. While the central bank is expected to leave rates unchanged, investors are keen for hints on whether policymakers are pivoting towards cutting rates sooner, an expectation that has fueled the rally in stocks this quarter.

Expiration is likely to loosen the options market’s vice-like grip on stocks, said Brent Kochuba, founder of options analytic service SpotGamma.

Markets faced a similar situation two years ago, when a similarly large options expiration reined in volatility for part of the fourth quarter, only to give way to a 3% rally in the last two weeks of the year following the December expiration, he said.

“All that positive gamma is really crunching the market,” Kochuba said. “The lid has been kept on volatility.”

(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili, Nick Zieminski and Jamie Freed)

Dollar on back foot as traders look to Fed for cut timing clues

TOKYO, Dec 13 – The dollar remained on the back foot versus major rivals on Wednesday, as traders braced for the conclusion of a Federal Reserve policy meeting and clues on when the U.S. central bank will begin cutting interest rates.

The U.S. currency edged lower to 145.385 yen in early Asian trading, adding to its 0.5% loss from the previous session. It was also down slightly against the euro at USD 1.0798, after losing about 0.28% on Tuesday.

The dollar index–which gauges the dollar against the euro, yen and four other counterparts–was steady at 103.82 following a 0.31% drop overnight.

Fed officials give updated economic and interest rate projections later in the day – following a meeting where analysts and investors expect rates to stay on hold – and investors will focus on how they see the economy holding up.

In particular, investors will be watching to see if Fed Chair Jerome Powell pushes back against the prospect of interest rate cuts in the first half of 2024.

Recent signs have been for a soft landing, but data overnight showed consumer prices unexpectedly rising in November.

Traders currently price in a quarter point rate cut in May.

“If the Fed does push back tonight on those rate cut expectations, the dollar index may have an opportunity move back into the October range of 105-107.”

Later this week the European Central Bank, Bank of England, Norges Bank and the Swiss National Bank also decide policy, with Norway considered the only one which could potentially raise rates. There is also a risk the SNB could dial back its support for the franc in FX markets.

The Bank of Japan’s policy meeting comes next week, and the yen has been volatile on speculation the central bank is drawing close to ending negative rate policy. Building hopes that this may occur next Tuesday were dashed after Bloomberg reported this week that BOJ officials see little need to rush to the exit.

The antipodean currencies ticked up against the dollar, with the Aussie adding 0.09% to USD 0.6565, and New Zealand’s currency rose 0.07% to USD 0.6139.

Meanwhile, leading cryptocurrency bitcoin continued to consolidate around USD 41,350 after pulling back from the highest since April 2022 at USD 44,729, reached on Friday.

(Reporting by Kevin Buckland; Editing by Michael Perry)

Hedge funds dismiss OPEC+ action to support oil prices: Kemp

LONDON, Dec 11 – Portfolio investors have rarely been so bearish on the outlook for crude oil, especially in the United States, as traders conclude Saudi Arabia and its OPEC+ partners can’t or won’t do more to reduce output in the short term.

Hedge funds and other money managers sold the equivalent of 58 million barrels in the six most important petroleum futures and options contracts over the seven days ending on Dec. 5.

Fund managers have sold petroleum in nine of the most recent 11 weeks reducing their position by a total of 385 million barrels since Sept. 19, according to exchange and regulatory records.

The combined position had been cut to just 295 million barrels (7th percentile for all weeks since 2013) on Dec. 5 down from 680 million (65th percentile) on Sept. 19.

Continuing the recent pattern, sales were focused on crude contracts (-38 million barrels) with sales in both Brent (-24 million) and NYMEX and ICE WTI (-14 million).

Funds had reduced their net position in NYMEX and ICE WTI to less than 48 million barrels, among the lowest levels in the last decade.

Funds have only been more bearish on WTI at the end of June 2023 (before OPEC+ implemented extra production cuts) and in 2015/16 (during the volume war and price slump that put an end to the first US shale boom in oil).

Fund managers appear to have concluded Saudi Arabia and its OPEC⁺ partners cannot or will not cut their production any further for the time being to boost prices.

At the same time, production from the United States has been increasing, putting upward pressure on local inventories and downward pressure on both spot prices and calendar spreads.

Some of the downward pressure on WTI can be attributed to these local factors but positioning in the much broader Brent contract has become fairly bearish too.

Funds held a position in Brent of just 143 million barrels (16th percentile) with long positions outnumbering shorts by a ratio of 3.13:1 (27th percentile).

The hedge fund community has become progressively more bearish even though prices have already fallen slightly below the long-term average after adjusting for inflation.

The bearish trade has become crowded which could presage a rapid short-covering rally if and when sentiment turns (which is what happened the last time the fund community became this bearish at the end of June 2023).

But most funds have concluded prices will fall further first to force US shale producers to curb output and remind OPEC⁺ members of the risks of a production free-for-all.

US NATURAL GAS

Investors have also become very bearish about the outlook for US gas as supply continues to increase while a strong El Niño threatens to cut heating demand during winter 2023/24.

Hedge funds and other money managers sold the equivalent of 146 billion cubic feet (bcf) of futures and options linked to Henry Hub gas prices over the seven days ending on Dec. 5.

Fund managers have sold every week for the last five weeks reducing their position by a total of 1,359 billion cubic feet since the end of October.

The position had been transformed into a net short of 416 bcf (20th percentile for all weeks since 2010) down from a net long of 943 bcf (53rd percentile) on Oct. 31.

Futures prices are very low in real terms but production has proved unexpectedly resilient, in part because so much associated gas is being produced from wells drilled to recover oil.

On the consumption side, one of the strongest El Niño episodes in the last 40 years has formed in the central and eastern Pacific, which is likely to ensure winter temperatures are warmer than normal across the northern United States.

A strong El Niño is expected to trim nationwide gas consumption by around 7% prolonging the rebalancing the process, ensuring that prices have to remain lower for longer to force a further slowdown in production.

(John Kemp is a Reuters market analyst. The views expressed are his own.)

Wall Street notches new 2023 closing highs, gold slides ahead of CPI, Fed

NEW YORK, Dec 11 – US stocks ended in positive territory and gold slid on Monday, as investors looked ahead to crucial inflation data and the US Federal Reserve’s two-day monetary policy meeting.

In a busy week for central banks, the yen weakened for a second straight day as expectations faded for the Bank of Japan to shift to a less dovish policy.

All three major US stock indexes gained momentum as day progressed, ending the session at their highest close of the year.

Gold dropped to a near three-week low as the dollar firmed.

“There’s a lot we don’t know about this week: we don’t know what inflation is going to be, we don’t we don’t know the Fed is going to do and we don’t know what retail sales are going to do,” said Rob Haworth, senior investment strategy director at US Bank Asset Management Group. “And on the back of all that investors seem to be feeling OK about the market.”

The US Labor Department’s closely watched Consumer Price Index (CPI) report, due on Tuesday, is expected to show inflation still cooling but staying well above the Fed’s 2% annual target.

The Federal Open Markets Committee’s (FOMC) two-day monetary policy meeting will end on Wednesday with its interest rate decision and the release of its summary economic projections.

While the Fed is largely expected to let the Fed funds target rate stand at 5.25%-5.50%, market participants will parse the central bank’s dot plot and summary economic projections to assess its likely path forward.

Interest rate decisions are also expected from the European Central Bank (ECB) on Wednesday and the Bank of England (BoE) on Thursday.

“We’ve had coordinated central bank policies for some time, locking arms as they battle inflation and send rates to high levels,” Haworth added. “But they could start to break ranks. Inflation seems to be falling faster and the economy weakening more in Europe than in the US”

The Dow Jones Industrial Average rose 157.06 points, or 0.43%, to 36,404.93, the S&P 500 gained 18.07 points, or 0.39%, at 4,622.44 and the Nasdaq Composite dropped 34.64 points, or 0.24%, to 14,432.49.

European shares notched modest gains ahead of critical US economic data and interest rate decisions from major central banks.

The pan-European STOXX 600 index rose 0.30% and MSCI’s gauge of stocks across the globe gained 0.29%.

Emerging market stocks lost 0.15%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.21% lower, while Japan’s Nikkei rose 1.50%.

US Treasury yields were little changed after weak 3- and 10-year note auctions.

Benchmark 10-year notes last rose 1/32 in price to yield 4.2409%, from 4.245% late on Friday.

The 30-year bond last fell 2/32 in price to yield 4.3285%, from 4.326%.

The greenback edged higher against a basket of world currencies ahead of Tuesday’s CPI report, while the yen slid on waning expectations for a less dovish monetary policy from Bank of Japan.

The dollar index rose 0.07%, with the euro up 0.01% to USD 1.0762.

The yen weakened 0.87% to 146.20 per dollar, while Sterling was last trading at USD 1.2554, up 0.06% on the day.

Oil prices rose slightly as investors balanced concerns over OPEC+ production cuts against worries of softening demand in the coming year.

US crude advanced 0.1% to settle at USD 71.32 per barrel, while Brent ended 0.3% higher at USD 76.03 per barrel.

Gold slid to a near three-week low as focus shifted to Tuesday’s CPI report. Spot gold dropped 1.1% to USD 1,980.91 an ounce.

(Reporting by Stephen Culp; Additional reporting by Wayne Cole and Lawrence White; Editing by Sharon Singleton, Richard Chang, and Marguerita Choy)

US recap: Dollar holds jobs boost, yen sold on Fed-BoJ risk reset

Dec 11 – The dollar index rose 0.13% in the wake of Friday’s upbeat payrolls report that catalyzed the frantic reversal of USD/JPY’s implosion Thursday on unrealistic BoJ rate hike speculation and aggressive Fed rate cut pricing.

Now, markets are shifting their attention to US CPI on Tuesday and Wednesday’s Fed meeting conclusion. Treasury yields and dollar off late after solid Treasury auctions.

USD/JPY rose 0.9% to nearly halve its enormous 151.92-141.60 plunge from November’s highs at 2022’s 32-year peak. It erased the bulk of Thursday’s 3.8% dive and overpricing of a near-term BoJ rate hike and aggressive Fed rate cuts

BoJ Governor Kazuo Ueda’s comments on Thursday regarding possible rate hikes were misconstrued by some as pointing to the risk of a hike at next week’s meeting. That view was further disabused by a Bloomberg report that BoJ officials see little need to rush into scrapping negative interest rates this month as they have not seen enough evidence of wage growth to justify sustainable inflation.

Futures don’t even have a 10bp hike priced in until April, which would be after spring wage negotiations, and FY 2024-5 plans would be available.

The key for USD/JPY and most dollar pairings remains the path of Fed policy. In the wake of Friday’s jobs data and ahead of CPI on Tuesday, the Fed on Wednesday, and retail sales on Thursday, futures now favor a first Fed hike in May, rather than March, with four hikes by year-end instead of the five recently priced in.

EUR/USD was flat, perhaps partly reflecting angst about China’s deflating economy, 130bp of ECB cuts priced in for 2024 and worries about Ukraine’s ability to fund its defense against Russia’s invasion.

Sterling was flat, giving up earlier gains, ahead of US event risks, Tuesday’s UK jobs data, and Thursday’s BoE and ECB meetings. BoE’s first cut is favored for June, with 75bp total next year.

Aussie fell 0.15% amid higher Treasury yields, Chinese deflation, and tumbling energy prices, with USD/CNH up 0.1% to its highest since Nov. 20.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)

Gold slips to three-week low; focus shifts to US inflation data

Dec 11 – Gold prices fell to a three-week low on Wednesday as the dollar and US Treasury yields firmed, while investors awaited several crucial central bank meetings and US inflation data that could influence the Federal Reserve’s policy path.

Spot gold was down 1.1% at USD 1,980.69 per ounce, as of 2:53 p.m. ET (1953 GMT), after hitting its lowest since Nov. 20. US gold futures settled about 1% lower at USD 1,993.70.

The dollar rose 0.1%, making gold more expensive for other currency holders. US 10-year Treasury yields also edged higher.

“Gold and silver traders are waiting for some new fundamental information that they’re going to get this week,” said Jim Wyckoff, senior analyst at Kitco Metals.

“Near-term chart posture for gold has deteriorated. If the CPI numbers are surprisingly high, that could produce some selling pressure on the gold market.”

Focus will be on the November US consumer price report due on Tuesday, before the Fed’s statement and Chair Jerome Powell’s comments on Wednesday.

Traders are pricing in a 71% chance of an interest rate cut in May, according to the CME FedWatch tool. Lower interest rates tend to support non-interest-bearing bullion.

Data on Friday showed US job growth accelerated in November.

“The resilience of the American labour market means that an earlier rate cut is unlikely … the prospect of higher-for-longer rates is back in a development that supports Treasury yields and the dollar, and is bad news for the non-yielding gold,” Ricardo Evangelista, senior analyst at ActivTrades said.

The European Central Bank, Bank of England, Norges Bank and the Swiss National Bank will also conduct policy meetings on Thursday.

Spot silver lost 0.6% to USD 22.83 per ounce, while platinum fell 0.3% to USD 911.64. Palladium rose 1.3% to USD 959.85 per ounce.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Shounak Dasgupta and Krishna Chandra Eluri)

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