Gold Hits Record High and Market Dynamics on the Move

Gold prices have surged to record highs as global markets respond to a mix of economic uncertainty and geopolitical tensions. In the wake of Federal Reserve Chair Jerome Powell's recent remarks, the precious metal soared, while various factors have been influencing market movements worldwide.

Key Factors for Today

• Record-breaking gold prices influenced by Powell's dovish lean, US economic data, and geopolitical tensions in the Red Sea.
• UK's PMI shows signs of a modest recovery, with housing data surprising economists.
• Eurozone's manufacturing sector sees improvement, but dovish remarks from Francois Villeroy de Galhau affect the Euro's performance.
• The Bank of Japan faces challenges as wage-driven inflation remains elusive.

Market Movers

• Gold prices skyrocketed by 1.8% to reach an all-time high of $2,075.6 per ounce, later surging past $2,135 following an attack on American and UK warships in the Red Sea.
• The British Pound strengthened by 0.62% against the US Dollar, driven by an unexpected rise in UK house prices.
• Eurozone's factory activity improved slightly, with the PMI rising to 44.2, while German manufacturing also saw an uptick.
• BOJ's board member, Asahi Naguchi, highlighted the challenges of achieving wage-driven inflation in Japan, leading to a ~1% drop in USDJPY.

Economic Calendar

• DE Balance of trade
• ECB President Lagarde Speech
• US Factory Orders
• Judo Bank Services PMI

The Big News

Gold Shines Bright

Record-Breaking Ascent Gold prices reached unprecedented heights on the back of a more dovish stance from Federal Reserve Chair Jerome Powell. Powell acknowledged that Fed policy is now well into restrictive territory, which was seen as a departure from the previous restrictive stance. The softening US dollar, coupled with weaker economic indicators, further bolstered gold's appeal. Manufacturing PMI in the US remained low at 46.7% for November, and ISM employment indicated a cooling trend at 45.8 versus 46.8, hinting at a potential soft landing scenario. Gold's rally accelerated with news of an attack on American and UK warships in the Red Sea, briefly pushing it past $2,135 an ounce before settling around the $2,100 mark.

UK PMI and Housing Data

A Mixed Picture The UK's manufacturing sector showed signs of recovery as the PMI increased to 47.2 in November. While this still indicated contraction, the British Pound managed to gain ground, thanks in part to a surprising surge in UK house prices reported by Nationwide. This unexpected housing data suggested that the impact of the Bank of England's recent rate hikes might be less severe than anticipated. The GBP/USD pair climbed 0.62% to 1.27, opening the door to further gains.

Eurozone's Manufacturing and Villeroy's Dovish Remarks

In the Eurozone, factory activity improved slightly in November, with the PMI rising to 44.2, exceeding expectations. German manufacturing also saw a positive uptick, with the PMI climbing to 42.6 from 40.8. However, the Euro struggled to gain traction as dovish comments from Bank of France Governor Francois Villeroy de Galhau weighed on the currency. Villeroy supported the narrative of disinflation and a quicker return to the bank's 2% target inflation. Despite a weaker US dollar, the EURUSD pair closed lower on Friday, hovering around 1.088.

BOJ's Wage-Driven Inflation Challenge

The Bank of Japan continues to grapple with the elusive goal of wage-driven inflation. Despite efforts and a call for a minimum 5% pay rise in 2024 by Japan's largest union, the Reuters poll forecasts Tokyo's core CPI growth to slow to 2.5% in November. This underscores the complexity of the BOJ's policy exit scenario. On Friday, the US dollar weakened overall, causing USDJPY to experience a significant ~1% drop to 146.71, with the 200-week moving average exposed at 145.50.