Precious Metals Week in Review

1. Investors are betting a final 2024 rate cut this Wednesday is a sure thing from the Federal Reserve, but the bigger question is whether the central bank is ready to scale back what it expects to do in 2025. In September, as the central bank initiated its first rate cut in more than four years, the dot plot revealed a consensus among Fed officials for two more cuts in 2024 and four small additional reductions in 2025. Now that 2025 projection is in question following a string of stubborn inflation readings and cautious commentary from Fed officials. That prior prediction for four rate cuts next year has "got to be rethought," former Cleveland Fed president Loretta Mester stated predicting a "slowing down" for 2025. Two or three cuts in 2025 "seems right to me." Some Fed watchers disagree, saying Fed officials will stick with their estimates for four cuts in 2025. "The story overall is they still expect inflation to come down," said Wilmington Trust chief economist Luke Tilley, who expects the median 2025 estimate to stay at four reductions. "They still think rates are restrictive."

2. The Federal Reserve reduced interest rates by a quarter percentage point Wednesday and scaled back the number of cuts it expects to make next year. In a split vote, the central bank voted to reduce its benchmark interest rate by 25 basis points to a new range of 4.25%-4.5%, initiating its third consecutive rate cut of 2024 despite signs that inflation isn’t entirely going away. The consensus among Fed officials is for two rate cuts next year, down from four previously forecast in September. "In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” officials from the Fed's Federal Open Market Committee said in a statement. The statement added in the phrase "extent and timing," indicating that the Fed may not continue its current trend of consecutive meeting cuts and may in fact slow its pace of easing.

3. U.S. economic output hit its highest level in nearly three years to close out 2024, according to the latest data from S&P Global. S&P Global's flash U.S. composite PMI, which captures activity in both the services and manufacturing sectors came in at 56.6 in December, up from 54.9 in August. Economists had expected the index to tick up to 55.1. Increased activity in the services sector drove the gains, with the services PMI business activity index hitting a reading of 58.5, its highest level in 38 months. Meanwhile, the manufacturing PMI declined to 48.3 in December, down from 47.9 and marking a three-month low for the index. Chris Williamson, chief business economist at S&P Global Market Intelligence, said the economy grew at its fastest pace in nearly three years this month, "consistent with GDP rising at an annualized rate of just over 3% in December." Since Donald Trump's election win, sentiment has shot higher, with confidence in the business outlook over the next 12 months hitting its highest level in two and a half years.

4. U.S. retail sales increased in more than expected in November amid an acceleration in motor vehicle purchases, consistent with strong underlying momentum in the economy as the year winds down. Retail sales jumped 0.7% last month after an upwardly revised 0.5% gain in October, the Commerce Department's Census Bureau said on Tuesday. Economists polled had forecasted retail sales, which are mostly goods and are not adjusted for inflation, advancing 0.5% after a previously reported 0.4% rise in October. Estimates ranged from a 0.1% dip to a 1.0% jump. Labour market resilience, characterised by historically low layoffs and strong wage growth, is underpinning consumer spending and keeping the economic expansion on track.

5. In the week ending December 14, the advance figure for seasonally adjusted initial claims was 220,000, a decrease of 22,000 from the previous week's unrevised level of 242,000. The 4-week moving average was 225,500, an increase of 1,250 from the previous week's unrevised average of 224,250.

6. Crude oil prices were on track for yet another weekly loss earlier today as pessimism about demand growth in China continued to dominate markets. At the time of writing Brent crude was trading at $72.45 per barrel and West Texas Intermediate was changing hands for $69.91 per barrel, both down from opening in Asia. It was reported the benchmarks could end the week some 3% lower than they started it. The big reason for the decline was the latest demand forecast about China, issued earlier in the week by its very own Sinopec. The company said oil demand growth in China would peak in three years at a daily demand level of some 16 million barrels or a total of 800 million metric tons.

7. After suffering a sharp drop of more than 1% on Wednesday, the EUR/USD managed a minor rebound by the end of the week, adding 0.28% to trade near 1.0395 on Friday. Despite this modest improvement, the pair remains below the 20-day Simple Moving Average (SMA), which continues to limit upside potential and maintains a cautious outlook.

8. The Yen is picking up from five-month lows on Friday, supported by a somewhat softer U.S. Dollar and hot Japanese inflation figures. The Dollar has pulled back from levels right below 158.00 and is testing support at the previous 156.60 resistance area.

The latest reading of the Federal Reserve's preferred inflation gauge showed price increases fell month over month in November but still remained sticky as the central bank fights to bring inflation back down to its 2% target. In November, the core Personal Consumption Expenditures (PCE) index, which strips out food and energy costs and is closely tracked by the Fed, rose 0.1% from the prior month, a deceleration from October's 0.3% monthly gain in prices and the slowest pace since May. The monthly increase came in slightly lower compared to economist's expectations of a 0.2% increase. Over the prior year, core prices rose 2.8%, matching the increase seen in October and lower than Wall Street's expectations of a 2.9% rise. On a yearly basis, overall PCE increased 2.4%, a pickup from the 2.3% seen in October.

Economists polled had anticipated a yearly increase of 2.5%.

The Dow Jones Industrial Average is on its worst losing streak in nearly 50 years. The major index has fallen for nine straight trading days, its largest stretch of consecutive declines since 1978. The move lower in the Dow comes as large-cap tech has largely been holding up the S&P 500 and Nasdaq Composite throughout December. The Dow's losses amount to roughly 3%, or more than 1,500 points, in the past nine trading sessions. The index has fallen from a record close of 45,014 on Dec. 4 to 43,499 as of Tuesday's close. In that same time frame, the S&P 500 is down about 0.6%, while the Nasdaq Composite is up almost 2%. Instead, the Dow has been pulled down, partly due to the recent sell-off in Nvidia stock. The blue-chip index added Nvidia on Nov. 8. Since then, one of the hottest stocks in the market has cooled off, with shares down nearly 12%. It's really the tech leadership versus everything else, value versus growth. A sell-off in healthcare stocks has also weighed on the Dow. UnitedHealth is down about 20% in the past 10 days. Other healthcare stocks have also lagged, with Johnson & Johnson and Amgen both down more than 4% in the past 10 trading sessions.

The U.S. current account deficit widened to a record high in the third quarter amid a surge in imports and lower primary income receipts. The Commerce Department's Bureau of Economic Analysis said on Wednesday that the current account deficit, which measures the flow of goods, services and investments into and out of the country, increased $35.9 billion, or 13.1%, to an all-time high of $310.9 billion last quarter. Economists polled had forecasted the current account deficit at $284.0 billion. The current account gap represented 4.2% of gross domestic product, the highest since the first quarter of 2022, up from 3.7% in the April-June quarter. The deficit peaked at 6.3% of GDP in the fourth quarter of 2005. The large current account deficit has little impact on the dollar given its status as the reserve currency.

Volatility should be expected to remain high as investors will be closely watching for hints on the upcoming monetary policy direction. Many investors have redoubled their efforts to ensure that their portfolios are sufficiently diversified in the hope that they will be able to withstand corrections in multiple market sectors. Many of these investors have included physical precious metals as part of their diversification plans, given their long history as a hedge against both inflation and during times of economic turmoil.

Remember, the key to profitability through the ownership of physical precious metals is to own the physical product and hold it for the long term. Always remember that you should never overextend your ability to maintain ownership of your precious metals over time.

This is not a solicitation to buy or sell.